Posting Closing Entries and Preparing a Post-closing Trial Balance, Page 6

Preparing Closing Entries

Follow these steps to prepare closing entries: 

1. Transfer the balances of all revenue accounts to the credit side of the income summary account. Ex.Debit revenue accounts and Credit Income Summary.
2. Transfer the balances of all the expenses account to the debit side of the income summary account. Ex. Credit each expense account and Debit Income Summary for the total of all expense accounts.
3. Transfer the balance of the income summary account to the capital account (Net income or Net loss). Ex. If the balance of Income Summary is a Net Income – Debit Income Summary and Credit Capital. If the balance of Income Summary is a Net Loss – Credit Income Summary and Debit Capital.
4. Transfer the balance of the withdrawals account to the debit side of the capital account. Ex. Credit withdrawals and Debit Capital.