the closing of the general ledger chapter 9. the closing of the general ledger transactions are...
TRANSCRIPT
The closing of the General Ledger
Chapter 9
The closing of the general ledger
Transactions are entered in
Journals
Journals are totalled
And posted to Ledgers Footings prepared
Trial Balance prepared
And then …
We close Revenue & Expenses account To
Work out Profit
Get the accounts ready for the next Reporting period by taking the Revenue & Expense accounts back to zero
Profit determination Revenue earned less Expenses incurred
equals profit Revenue & Expense accounts are
transferred to the Profit & Loss Summary account
This leaves a $0 figure in all the Revenue & Expense accounts
Revenue accounts An increasing Revenue account gets a
Credit To decrease Revenue, it gets a Debit
Sales
Mar 31 Profit & Loss account 10000 Mar 31 Bank 4000
Debtors 6000
1000010000
Profit & Loss Summary account Credit in P&L Summary
Mar 31 Revenue accounts 10000
Profit & Loss account
Closing entries & the General Journal Closing entries are unusual, infrequent, non
cash transactions so A record is made of them in the General
Journal
General Journal
Date Details Dr CrMar 31 Sales 10000
P&L Summary account 10000
Closing entries
Expense accounts An increasing Expense account gets a
Debit To decrease an Expense, it gets a Credit
Mar 31 Bank 500 Mar 31 Profit & Loss account 500
500 500
Electricity
Profit & Loss Summary account Debit in P&L Summary
Mar 31 Expense accounts 500
Mar 31 Revenue accounts 10000
Profit & Loss account
General Journal
Date Details Dr CrMar 31 Sales 10000
P&L Summary account 10000
Closing entries
P&L Summary account 500
Electricity 500
Closing entries
Profit & Loss Summary account
Debit in P&L Summary = a profit (more revenue than expense)
Mar 31 Expense accounts 500
Capital (net profit) 9500
Mar 31 Revenue accounts 10000
Profit & Loss account
Profit & Loss Summary account Credit in P&L Summary = a loss (more
expenses than revenue
Mar 31 Expense accounts 10500 Mar 31 Revenue accounts 10000
Capital (net loss) 500
Profit & Loss account
General Journal
Date Details Dr CrMar 31 P&L Summary account 9500
Capital 9500
Transfer of net profit
Capital 500
P&L Summary account 500
Transfer of net loss
Capital account
Mar 31 Drawings 10000
Balance ?
11500
Mar 31 Balance 2000
P&L Summary 9500
11500
Capital
Capital balanced These details are reported in the Balance
Sheet
Mar 31 Drawings 10000
Balance 1500
11500
Mar 31 Balance 2000
P&L Summary 9500
11500
Capital
Balance SheetAssets Liabilities
Owner’s EquityCapital 2000Add Net Profit 9500Less Drawings (9000)
2500
The Profit & Loss Summary is prepared in the General Ledger
Most people who look at the businesses books do not understand how to read the ledger accounts.
So a Income Statement is also prepared so they can see and make decisions.
(There is a question on this in the exercises so remember this point)
Income StatementRevenue
Sales
Less Cost of Goods Sold
Cost of Sales
Gross Profit
Less Expenses
Net Profit
What happens to the Asset & Liability accounts? At the end of the period they are balanced
Mar 31 Balance 2000
Sundry Receipts 10000
12000
Mar 31 Sundry Payments 7000
Balance 5000
12000
Bank
Carrying the balances down At the start of the next period, the balance
is carrying down to start the next month.
Mar 31 Balance 2000
Sundry Receipts 10000
12000
Apr 1 Balance 5000
Mar 31 Sundry Payments 7000
Balance 5000
12000
Bank
The end