The Accounting Cycle Completed

5. When closing is complete, all temporary accounts in the ledger will have a zero
balance, and all this information will be updated in the Capital account.
6. Closing entries are usually done only at year-end. Interim reports can be prepared
from worksheets that are prepared monthly, quarterly, etc.
Learning Unit 5-3
1. The post-closing trial balance is prepared from the ledger accounts after the adjusting
and closing entries have been posted.
2. The accounts on the post-closing trial balance are all permanent accounts.
KEY TERMS
Adjusting journal entries Journal entries that are needed in order to update
specific ledger accounts to reflect correct balances at the end of an accounting
period (p. 170)
Closing The process of bringing the balances of all revenue, expense, and
withdrawal accounts to zero, ready for a new fiscal year (p. 174)
Closing journal entries Journal entries that are prepared to (a) reduce or
clear all temporary accounts to a zero balance or (b) update capital to a new
closing balance (p. 174)
Income Summary A temporary account in the ledger that summarizes revenue
and expenses and transfers its balance (net income or net loss) to capital.
It does not have a normal balance. (p. 175)
Nominal accounts See Temporary accounts (p. 174)
Permanent accounts Accounts whose balances are carried over to the next
fiscal year; examples: assets, liabilities, capital (p. 174)
Post-closing trial balance The final step in the accounting cycle that lists
only permanent accounts in the ledger and their balances after adjusting and
closing entries have been posted (p. 184)
Real accounts See Permanent accounts (p. 174)
Temporary accounts Accounts whose balances at the end of a fiscal year
are not carried over to the next fiscal year. These accounts—Revenue,
Expenses, Withdrawals—help to provide a new or ending figure for capital
to begin the next fiscal year. Keep in mind that Income Summary is also a
temporary account. (p. 174)
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CHAPTER 5