1. Project 3

1.5. Training Room Summary

Project 3: Closing Entries

Project 3: Closing Entries

 

This image shows a green road sign that says, “Start Over.”

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Training Room Summary

 

To review what you have studied in Training Room 1, answer the following questions.

  1. There are only four entries to close the accounts at the end of a fiscal period.  Do you remember what they are?

 

 

 

 

 

 

Check your answer.
  1. The following are the only four entries to close the accounts at the end of a fiscal period:
  • revenue
  • expenses
  • net income or net loss
  • drawing

 

  1. What is the purpose of closing these accounts?

 

 

 

 

 

 

Check your answer.
  1. The purpose of closing these accounts includes the following:
  • A business wants to keep track of revenue and expense amounts during each fiscal period so that the business owner can compare fiscal periods. This way, the owner knows when the highest revenue is made and when the most expenses are incurred. To do this, he or she closes the accounts and starts over at zero at the beginning of each fiscal period. 

  • The income summary contains the total revenue, total expenses, and the net income or net loss for each fiscal period for easy reference in one statement.

  • The drawing account is the owner’s expense account and is kept separate, as it is not an expense to generate revenue. By closing drawing, a record of the amount the owner is withdrawing from the business each fiscal period can be kept.

 

Closing the accounts allows the company to keep new records for a new fiscal period.

 

All entries from the journal must be posted into the ledger before these accounts will be officially closed. Continue on to Training Room 2, where Sakineh will show you how to do this.