Closing Entries

accounting is cyclical

final stage

real vs nominal accounts

real accounts

Includes all asset and liability accounts, as well as owner's capital account. (Bank Trucks, and AP)

nominal accounts

Includes revenue, expense, and drawings. With the exception of drawings, it's related to the income statement - which is only in a single fiscal period. All nominal accounts begin each fiscal period with a balance of zero.

income summary account

Summarize revenues and expenses of the period. Temporary balance in this account represents either the amount of net income or the amount of the net loss.

closing out nominal accounts

3 steps at end of a fiscal period

bring accounts up to date

close nominal acconts

step 2

• Transfer balance of rev/expense to Income summary account
• Transfer balance of Income Summary and Drawings account to Capital account
• When this happens all nominal accounts will have zero balance - except...?

post-closing trial balance