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Unformatted text preview: he only accounts that are
closed and brought to a zero balance. Balance sheet account balances (called real or permanent
accounts) continue into the next accounting period.
Steps to closing accounts:
1. Close all revenue accounts. Revenue accounts have a credit balance, so in order to zero these
accounts, you must debit them. The credit will increase the income summary account.
Debit: Revenues Credit: Income Summary
2. Close all expense accounts. Expense accounts have a debit balance, so in order to zero these
accounts, you must credit them. The debit goes to Owner's Equity (or retained earnings, if a
corporation). Debit: Income Summary Credit: Expenses
3. Close the balance of the income summary account. If the remaining balance is a credit (net
Debit: Income Summary (to zero out the account) and Credit: Retained Earnings.
If remaining balance is a debit balance (net loss) then:
Credit: Income Summary and Debit: Retained Earnings
Prepare a Post-Closing Trial Balance
• Post closing trial balance will only have account balances for balance sheet accounts (assets,
liabilities, and owner's equity)
• All revenue and expense accounts will have a zero balance.
• Debits still must equal credits! 34...
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