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Closing Entries – Steps

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					                                                    Closing Entries – Steps

If Perpetual Inventory Method being used:-

Step 1   Close the Sales account to the Trading account.                  DR Sales                       xxx
                                                                          CR         Trading Account             xxx
Step 2   Close the COGS account to the Trading account.                   DR Trading account              xxx
                                                                          CR         COGS                        xxx
Step 3   Close the Trading account by transferring its balance (gross     DR Trading Account             xxx
         profit) to the Profit and Loss (P&L) account.                    CR       P&L Account                   xxx
Step 4   Close all remaining revenue accounts to the P&L account.         DR Revenue                      xxx
                                                                          CR       P&L Account                   xxx
Step 5   Close all remaining expense accounts to the P&L account          DR P&L Account                  xxx
                                                                          CR       Expenses                     xxx
Step 6   Close the P&L account by transferring its balance (net profit    DR P&L Account                 xxx
         if credit balance or net loss if debit balance) to the Capital   CR       Capital (profit)             xxx
         account.                                                                                   OR
                                                                          DR Capital (loss)              xxx
                                                                          CR       P&L Account                  xxx
Step 7   Transfer the balance of the Drawings account to the Capital      DR Capital                     xxx
         account                                                          CR       Drawings                     xxx
If Periodic Inventory Method being used:-

Step 1   Close the Sales account to the Trading account.                   DR Sales                         xxx
                                                                           CR        Trading Account                xxx
Step 2   a) Transfer the balance of Inventory account (opening             DR Trading Account                xxx
         inventory) to the Trading account.                                CR Inventory                             xxx

         b) Close the Purchases account to the Trading account.            DR Trading Account                xxx
                                                                           CR Purchases                             xxx

         c) Enter the value of closing inventory as per the stocktake by   DR Inventory                      xxx
         debiting Inventory account and crediting Trading account          CR     Trading Account                   xxx
Step 3   Close the Trading account by transferring its balance (gross      DR Trading Account               xxx
         profit) to the Profit and Loss (P&L) account.                     CR       P&L Account                     xxx
Step 4   Close all remaining revenue accounts to the P&L account.          DR Revenue                       xxx
                                                                           CR       P&L Account                     xxx
Step 5   Close all remaining expense accounts to the P&L account           DR P&L Account                   xxx
                                                                           CR       Expenses                       xxx
Step 6   Close the P&L account by transferring its balance (net profit     DR P&L Account                   xxx
         if credit balance or net loss if debit balance) to the Capital    CR       Capital (profit)               xxx
         account.                                                                                      OR
                                                                           DR Capital (loss)                xxx
                                                                           CR       P&L Account                    xxx
Step 7   Transfer the balance of the Drawings account to the Capital       DR Capital                       xxx
         account                                                           CR       Drawings                       xxx



Remember: NEVER close asset or liability accounts

				
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posted:11/25/2011
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