Textbook Notes (280,000)
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MGT 11A (30)
Chapter 3

MGT 11A Chapter Notes - Chapter 3 : Financial Statement, Accrued Interest, Trial Balance

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Cont. Ch. 3
Mgt 11A
Closing Process
- Is important b/c..
- It prepares accounts for recording transactions, and the events of the next
- Must to do:
- Identify accounts for closing
- Record & post the closing entries
- Prepare a post-closing trial balance
- Purpose:
- It resets revenue, expense, dividends account balances to zero at end of each
- Helps to properly measure income & dividends for next period
- Helps in summarizing period’s revenues & expenses
- Temporary and Permanent Accounts
- Temp (aka nominal) accts = accumulate data related to 1 accounting period
- Includes..
- All income statement accounts
- Dividends account
- Income summary account
- Why temporary?
- b/c these accounts (income statement, dividends, income
summary) are opened, recorded, and closed in each period.
- Closing process applies only to temp accts
- Permanent (aka real) accts = reports activities related to one or more future
accounting periods
- Ending balances are carried into next period
- Generally consist of all balance sheet accounts
- Asset, liability, equity accounts are not closed
- Recording closing entries
- Means to transfer end-of-period balances in revenue, expense, dividends accts
to permanent retained earnings account
- Are necessary b/c
- Revenue, expense, dividends accts must begin each period with 0
- Retained earnings must reflect prior periods’ revenues, expenses, and
- Income Summary
- Is a temp acct (only used for closing process) contained credit for sum of
all revenues and gains, and debit for the sum of all expenses and losses.
- Its balance=net income/net loss, and is transferred to retained earnings
- Next, dividends acct is transferred to retained earnings
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