CLOSING ENTRIES

CLOSING ENTRIES - CLOSING ENTRIES. Thought process. 1. We...

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CLOSING ENTRIES. Thought process. 1. We are at the end of our accounting period (month, quarter, year). 2. We need to ‘clear out’ or ‘reset’ the income statement accounts. We CLOSE them. 3. The income statement summarizes our performance during the period. 4. Any profit or loss needs to flow to the balance sheet. 5. That profit or loss is reflected in ‘RETAINED EARNINGS’ 6. However, we may have numerous accounts that are closing (one for each revenue, expense, gain and loss account). 7. TO keep the RETAINED EARNINGS from being too cluttered, sometimes we use INCOME SUMMARY (This is the text method) 8. ABOUT THE INCOME SUMMARY ACCOUNT a. It is a TEMPORARY account b. It has NO TRANACTIONS during the period c. There are NO ADJUSTING ENTRIES posted to this account. We close AFTER we have made all of our adjusting entries. d. It is used ONLY to collect the ‘other side’ of closing entries. (IF we debit a SALES account, we have to credit some other account). e.
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CLOSING ENTRIES - CLOSING ENTRIES. Thought process. 1. We...

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