Closing Entries Demonstration - YouTube

This is the video demonstration on closing entries and in this video I'm going to be

working the solution to example number three now example number three involves the Carter

company and they've provided us with and adjusted trial balance that is dated December 31st

2013 and if you look at the requirements we are simply require to prepare the closing

journal entries we talked about the closing entries in a video lecture and you realize

that there are four types of temporary accounts and as a result there are four closing entries

so we're going to do those journal entries based upon information that's included in

this particular trial balance now before I even begin to do that though it's a good idea

to go ahead and familiarize yourself with the trial balance itself and look at all the

accounts because by doing that in advance it will make this problem a little bit easier

because you already be somewhat familiar with the types of accounts that this particular

company has so looking at this trial balance I see many assets cash office supplies prepaid

insurance and equipment then I see the contra assets of accumulated depreciation on the

equipment then I see to liabilities the accounts payable and the wages payable course assets

liabilities those are all permanent accounts so I really don't have to worry about those

in the closing process then I have capital I will be using capital a lot in these journal

entries then I have withdrawals well we know that withdrawals does have to be closed its

temporary so I'll defiantly be using that then I see an account called repair fees earned

well that type of account that's a revenue account and revenue also has to be closed

and then I see a whole series of expenses so by doing this in advance just gives me

an idea of what to look for it just familiar as me a little bit with this particular company

now to do these closing journal entries I'm going to use Excel and I already have a journal

entry area set up in advance and of course you could do this as well we could do this

on paper but I'm going to have to do four of these closing entries now these are going

to be dated December 31st 2013 and the very first entry that I'm going to do is the entry

to close out the revenue now all companies are a little different some have more revenue

than others this one only had one revenue account and it was this one right here repair

fees earned and it had a $80,000 credit balance so that means this is going to be an $80,000

journal entry now what I want to do is close out revenue and the way to do that is to take

everything out so that the account has 0 balance in order to do that I have to take the opposite

action of whatever type of balance it has so it happens to have a credit balance so

if I want to remove all of that I'm going to have to debit so that means that I want

to actually debit repair fees earned to close that out now what do I close that too I'm

going to close that to income summary so I'll debit repair fees earned 80,000 credit income

summary 80,000 and that way it will close out the revenues so that completes the first

of the four closing entries then the next closing entry this one is always the one to

close out the expenses now when I look at their trial balance they did have several

expense they were all down here at the bottom and there actually six of them and they have

different balances but what the common element is look at all the expenses they all have

debit balances so that means that close to close these out every single one of them is

going to have to be credited so I'm going to debit income summary but I'm going to credit

every single one of those expense now the first expense that they had was depreciation

expense on the equipment and it had a balance a 4200 so depreciation expense on equipment

and the balance of that was forty two hundred dollars and I'm going to put that as a credit

because remember to close out a debit balance I have to credit that will get rid of the

balance then they had a wages expense and it was 36,500 so wages expense 36,500 and

I want that all the way over here on the credit side then third expense insurance expense

and a balance of 750 so insurance expense 750 the fourth expense that they had rent

expense and it had a balance of 8600 so rent expense 8600 then they had office supplies

expense 2500 so office supplies expense 2500 and then finally the last expense was utilities

expense with the 1200 balance so that gives you all of the various expense accounts like

I said there were six of those now that's on the credit side so up here on the debit

side I need a debit to income summary and that's going to be the total of all of these

expenses so that's how I'm going to get it that total so that's 53,750 that's the total

every single one of those expenses and that completes the closing entry for the expense

accounts now next closing entry I'm going to have to close out income summary now this

one is a little bit tricky because when I look at the adjusted trial balance

remember I've already looked at all these accounts there's no income summary account

on here and the reason for that is the income summary account is actually never used until

you actually get to the closing process so that's why it doesn't actually appear anywhere

on the trial balance so in order to close it out I'm actually going to have to look

at my two journal entries and see how income summary was used so that way I'll know what

kind of a balance it has so I can see in the first entry we credited income summary for

80,000 then in the next entry we debited income summary for 53,750 now of the two there's

more on the credit side of it then there is on the debit side so it's going to have a

credit balance so since its going to have a credit balance I'm going to have to close

it by debiting and what do I close that to capital so I will debit income summary and

I will credit S.Carter capital but I don't know the amount well its going to be the 80,000

less the 53,750 that leaves me with 26,250 so 26,250 will be the amount that I'll use

for that closing entry and then I just have one more and that's going to be the entry

to close out the withdrawal account now the withdrawals that is actually right here S.Carter

withdrawals had a 10,000 balance so this will be a 10,000 journal entry now the withdrawal

account what type of a balance was that 10,000 it was a debit balance so that means to close

out the withdrawals I will actually have to credit so I will actually credited S.Carter

withdrawals and what does that get close to it gets closed to capital so that's going

to be the debit so that completes the four closing journal entries and remember you always

do revenue first then expenses then income summary then withdrawals and when you do the

first one on the revenue like I said this particular company only had the one type of

revenue which was repair fees earned so it was pretty easy but of course you know if

you have to do this on homework or something like that it's possible that company might

have more than one revenue but if they do you would close out all of them and then down

here on the expense they happen to have 6 of them that could be a little different as

well some companies have more expense some have fewer so that could be a little different

and then down here like I said this was a tough one because I didn't know what kind

of a balance income summary had but to figure that out I just looked back in my first two

entries and then I just close out the withdrawal account so that completes the example number

three and that completes the video demo for closing entries