Prepare After Closing Trial Balance
After you prepare your Adjusted Trial Balance we transfer these balances to our After Closing Trial Balance Worksheet.
Entries from our Adjusted Trial Balance Worksheet
We then enter our closing entries and add or subtract the debit and credit amounts to arrive at our After Closing Trial Balance amounts.
Shabby Computer Systems
After Closing Trial Balance Worksheet
December 31, xxxx
|Account Name / Description||Adjusted Trial Balance||Closing Entries||After ClosingTrial Balance|
Balance Sheet Accounts
Office Supplies Inventory
Inventory for Resale
Shabby Computer Systems, Capital
Shabby Computer Systems, Drawings
Total Balance Sheet Accounts
Revenue & Expense Accounts
Cost of Goods Sold-Computers
Vehicle Operation Expense
Maintenance & Repairs
Bad Debt Expense
Professional Fees Expense
Total Revenue/Expense Accounts
Balance Of Income Summary Account After Closing Revenue and Expense Accounts And Prior To Transferring Profit/Loss
|Total Debits and Credits||107840||150000|
Income Summary Balance-Credit Balance of 42160
Transfer Income Summary Balance-Profit/Loss
Total Income Summary
| Total All Accounts ||182600||182600||324000||324000||50760||50760|
Steps In Closing Our Books
- Close Drawing Account to Capital Account
See Entry (a)
- Close All Revenue and Expense Accounts To Income Summary Account
See Entries (b) thru (o)
- Close Income Summary Account to Capital Account
See Entry (p)
- Calculate our After Closing Trial Balance Amounts. This column is a calculated by taking the balance in our Adjusted Trial Balance Column and adding or subtracting the debit and/or credit closing entry adjustments in our Closing Entry Column to arrive at our After Closing Trial Balance Amount.
Click on the Reference Number (Ref) in the After Closing Trial Balance Worksheet for an explanation of the closing entry.
Notice that all the revenue accounts are debited and all the expense accounts are credited in order to zero out their balances with the offsetting debit or credit entry to the temporary Income Summary Account. This account is then closed (transferred) to the Capital Account.
Let's look at our definition of closing entries. Closing Entries-Entries made at the end of a period (usually year) to reduce the "temporary" account balances (revenue, expenses, and drawing accounts) to zero and transfer the summarized balances to the capital account All our Income Statement Accounts are going to be set to zero (closed) and the net balance (which is actually the profit/loss) transferred to the Capital Account in the Balance Sheet Accounts.
In addition the balance of the Owner's Drawing account is also transferred (closed) to the Capital Account in the Balance Sheet Accounts.
A quick refresher about our revenue, expenses, and draw accounts.
Revenue (Income), Expenses, and Draws
Revenues, expenses, and draws are sub categories of owner's equity. Think of owner's equity as a mom with three children to keep up with (I know she's only got one clinging to her leg but she left Expense and Draws at home). The kids are named Revenue, Expense, and Draws and each kid has one job that they are responsible for in order to earn their allowance. Kid Revenue is responsible for keeping track of increases in owner's equity and Kid Expense is responsible for keeping track of decreases in owner's equity resulting from business operations. Kid Draws has the job of keeping up with decreases in owner's equity resulting from owner withdrawals for living expenses and other personal expenses.
At the end of our period, we summarize all our kid's activities and transfer their balances to our Owner's Equity Capital Account (Mom).
What's Next ?
Formal Financial Statements