[ { "name": "Airplane", "path": "airplane.png" }, { "name": "Balloons", "path": "balloons.png" }, { "name": "Camera", "path": "camera.png" }, { "name": "Car", "path": "car.png" }, { "name": "Cat", "path": "cat.png" }, { "name": "Chair", "path": "chair.png" }, { "name": "Clip", "path": "clip.png" }, { "name": "Clock", "path": "clock.png" }, { "name": "Cloud", "path": "cloud.png" }, { "name": "Computer", "path": "computer.png" }, { "name": "Envelope", "path": "envelope.png" }, { "name": "Eye", "path": "eye.png" }, { "name": "Flag", "path": "flag.png" }, { "name": "Folder", "path": "folder.png" }, { "name": "Foot", "path": "foot.png" }, { "name": "Graph", "path": "graph.png" }, { "name": "House", "path": "house.png" }, { "name": "Key", "path": "key.png" }, { "name": "Leaf", "path": "leaf.png" }, { "name": "Light Bulb", "path": "light-bulb.png" }, { "name": "Lock", "path": "lock.png" }, { "name": "Magnifying Glass", "path": "magnifying-glass.png" }, { "name": "Man", "path": "man.png" }, { "name": "Music Note", "path": "music-note.png" }, { "name": "Pants", "path": "pants.png" }, { "name": "Pencil", "path": "pencil.png" }, { "name": "Printer", "path": "printer.png" }, { "name": "Robot", "path": "robot.png" }, { "name": "Scissors", "path": "scissors.png" }, { "name": "Sunglasses", "path": "sunglasses.png" }, { "name": "Tag", "path": "tag.png" }, { "name": "Tree", "path": "tree.png" }, { "name": "Truck", "path": "truck.png" }, { "name": "T-Shirt", "path": "t-shirt.png" }, { "name": "Umbrella", "path": "umbrella.png" }, { "name": "Woman", "path": "woman.png" }, { "name": "World", "path": "world.png" } ]{"id":2681,"date":"2023-02-06T09:43:47","date_gmt":"2023-02-06T14:43:47","guid":{"rendered":"http:\/\/unfiltered-adventures.com\/?p=2681"},"modified":"2023-10-30T10:54:21","modified_gmt":"2023-10-30T15:54:21","slug":"closing-entries-definition","status":"publish","type":"post","link":"https:\/\/unfiltered-adventures.com\/2023\/02\/06\/closing-entries-definition\/","title":{"rendered":"Closing entries definition"},"content":{"rendered":"

The second part is the date of record that determines who
\nreceives the dividends, and the third part is the date of payment,
\nwhich is the date that payments are made. Printing Plus has $100 of
\ndividends with a debit balance on the adjusted trial balance. The
\nclosing entry will credit Dividends and debit Retained
\nEarnings. To further clarify this concept, balances are closed to assure
\nall revenues and expenses are recorded in the proper period and
\nthen start over the following period. The revenue and expense
\naccounts should start at zero each period, because we are measuring
\nhow much revenue is earned and expenses incurred during the period.<\/p>\n

If your business is a corporation, you will not have a drawing account, but if you paid stockholders, you will have a dividends account. If you paid dividends for the month, you will need to close that account as well. This is the adjusted trial balance that will be used to make your closing entries. While these accounts remain on the books, their balance is reset to zero each month, which is done using closing entries.<\/p>\n

All income statement balances are eventually shifted to retained earnings, which is a permanent account on the balance sheet. A business will use closing entries in order to reset the balance of temporary accounts to zero. The remaining balance in Retained Earnings is $4,565 (Figure 5.6). This is the same figure found on the statement of retained earnings. Closing entries transfer the balances from the temporary accounts to a permanent or real account at the end of the accounting year. Failing to make a closing entry, or avoiding the closing process altogether, can cause a misreporting of the current period\u2019s retained earnings.<\/p>\n

It also helps the company keep
\nthorough records of account balances affecting retained earnings. Revenue, expense, and dividend accounts affect retained earnings
\nand are closed so they can accumulate new balances in the next
\nperiod, which is an application of the time period assumption. There may be a scenario where a business\u2019s revenues are greater than its expenses. This means that the closing entry will entail debiting income summary and crediting retained earnings. But if the business has recorded a loss for the accounting period, then the income summary needs to be credited. The first entry requires revenue accounts close to the Income Summary account.<\/p>\n

Guide to Understanding Accounts Receivable Days (A\/R Days)<\/h2>\n

Instead, declaring and paying dividends is a method utilized by
\ncorporations to return part of the profits generated by the company
\nto the owners of the company\u2014in this case, its shareholders. Since the income summary account is only a transitional account, it is also acceptable to close directly to the retained earnings account and bypass the income summary account entirely. The net result of these activities is to move the net profit or net loss for the period into the retained earnings account, which appears in the stockholders’ equity section of the balance sheet.<\/p>\n

Printing Plus has $100 of supplies expense, $75 of depreciation expense\u2013equipment, $5,100 of salaries expense, and $300 of utility expense, each with a debit balance on the adjusted trial balance. The closing entry will credit Supplies Expense, Depreciation Expense\u2013Equipment, Salaries Expense, and Utility Expense, and debit Income Summary. You might be asking yourself, \u201cis the Income Summary account even currency translation adjustments<\/a> necessary? \u201d Could we just close out revenues and expenses directly into retained earnings and not have this extra temporary account? We could do this, but by having the Income Summary account, you get a balance for net income a second time. This gives you the balance to compare to the income statement, and allows you to double check that all income statement accounts are closed and have correct amounts.<\/p>\n