Page 162 - Accounting Principles (A Business Perspective)

4. Completing the accounting cycle

Income Summary
(Dr.) Account No. 600 (Cr.)
"2010 Dec. 31 From
2010 closing
Dec. 31 From closing the The revenue
expense accounts 6,510 accounts 13,800
Bal. before closing this
account (net income) 7,290
Dec. 31 To close this
account to Retain ed
Earnings 7,290
Bal. after closing —0—
Retained Earnings
(Dr) Account No. 310 (Cr.)
Bal. before closing -0-
Process
2010
Dec. 31 From Income 7,290 Decreased by
Summary $7,290
The last closing entry closes MicroTrain's Dividends account. This account has a debit balance before closing. To
close the account, credit the Dividends account and debit the Retained Earnings account. The Dividends account is
not closed to the Income Summary because it is not an expense and does not enter into income determination. The
journal entry to close MicroTrain's Dividends account is:

MICROTRAIN COMPANY
General Journal Page 4
Date Account Titles and Explanation Post. Ref. Debit Credit
31 Retained Earnings (-SE) 310 3 0 0 0
2010 Dec.
Dividends (+SE) 320 3 0 0 0
To close the Dividends account to the Retained Earnings
account.
After this closing entry is posted, the company's Dividends and Retained Earnings accounts appear as follows:
Dividends
(Dr.) Account No. 320 (Cr.)
Bal. before closing 3,000 2010 3000
Dec. 31 To close to
Retained
Earning
Decreased
by $3,000

Bal. after closing —0—
Retained Earnings
(Dr.) Account No. 310 (Cr.)
2010 Bal. before closing
process -0-
2010
Dec. 31 From dividends 3,000 Dec. 31 From Income
Summary 7,290
Bal. after closing
process is complete 4,290
After you have completed the closing process, the only accounts in the general ledger that have not been closed
are the permanent balance sheet accounts. Because these accounts contain the opening balances for the coming
accounting period, debit balance totals must equal credit balance totals. The preparation of a post-closing trial
balance serves as a check on the accuracy of the closing process and ensures that the books are in balance at the
start of the new accounting period. The post-closing trial balance differs from the adjusted trial balance in only two

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