Unit 7 Closing Entries
Lead-in
Identify the pictures below.Match them with the words in the box.
Section A
Dialogue 1
Mary is going to have an interview for an accountant.Here is the conversation between Mary and interviewer Steven.
M=Mary S=Steven
S: Good morning.Nice to meet you.
M: Good morning.Glad to meet you too.
S: Have a seat and tell me something about yourself.
M: I am going to graduate from Shanghai University of Finance and Economics this year and my major is accounting.
S: Good.Can you tell me something about closing entries now?
M: Of course.Closing entries refers to the final bookkeeping entries made at the end of an accounting period to transfer income and expense items to the balance sheet account.In addition, it includes four steps.
S: What are the four steps?
M: They are closing out income account, closing out all expense accounts, closing out the expense and income summary account and closing out the drawing account.
S: That is great, so when can you come on board?
M: Anytime.
S: OK.I will get back to you within two weeks.Thanks for coming.
M: Thanks a lot for giving me the interview opportunity.
New Words
Phrases and Expressions
closing entries 结账分录
on board 入职
Dialogue 2
Emma is the graduate trainee in the accounting department, and she has made a mistake on closing entries.Joyce is the manager in this department who conducts Emma to revise the closing entries.
J=Joyce E=Emma
J: Hi.May I have a talk with you about the company’s closing entries?
E: Of course.
J: There are some accounting errors to be corrected.
E: Can you explain them to me one by one.
J: The cost of carriage inwards is added to the selling and distribution expense on the Income Statement.Do you think it is right?
E: Oh.I am sorry.I made a serious mistake.It belongs to the cost of purchases, increasing inventory value on the balance sheet.
J: You are a green hand.Don’t blame yourself.Remember to check the entries before you do closing entries.
E: Thanks for your suggestion.I will be more careful next time.
J: Okay.Please do the closing entries over and review the trail balance before you bring it to me.
E: Sure.I will get it done ASAP.
J: All right, we all work late for closing.I believe you can do it well.
E: Will do.
New Words
Phrases and Expressions
selling and distribution expense 销项运费
Income Statement 利润表
balance sheet 资产负债表
green hand 新手
do sth.over 重做某事
ASAP=as soon as possible 尽快
Exercise 1
Decide whether the following statements are true (T) or false (F) according to the dialogues.
□ 1.Joyce made a mistake on the closing entries.
□ 2.Emma is the intern in the accounting department.
□ 3.It is right for Emma to add the cost of carriage inwards to the selling and distribution expense on the Income Statement.
□ 4.Joyce blamed Emma for her mistake that she made.
□ 5.Emma need to do the closing entries again and hand over it to Joyce.
Exercise 2
Oral practice：Pair work.Use the questions below to ask your partner.Then change roles.
1.What program is Emma charge of ?
2.Does Emma know how to revise the closing entries?
3.What suggestions does Joyce give to Emma?
4.Does Joyce blame for Emma?
5.How to check if the closing entries is right or not?
Exercise 3
Practical activity：Work in pairs and make a conversation.
Suppose you are Mrs.Chen, an accountant from Li Xin accounting firm and you are designated to participate on-campus job fair.Your firm need an accounting assistant who is good at doing closing entries.
Section B
Closing Entries
The closing entries is an important step at the end of an account period after financial statements has been prepared.
Temporary or nominal accounts accumulate data related to one accounting period.They include income statement accounts, the dividends account, and the income summary account, that is, revenue, expense and capital withdrawal (dividend) accounts are temporary accounts.Why are they temporary accounts? Because the accounts are opened at the beginning of a period, used to only record transactions and events for that period, and then closed at the end of the period, which means they will have zero balances at the start of the next period.The closing entries applies only to temporary accounts.
Permanent or real accounts report on activities related to one or more future accounting periods.They carry their ending balances into the next period and generally consist of all balance sheet accounts.These asset, liability, and equity accounts are not closed.Closing entries are the journal entries used to transfer the balances of these temporary accounts to permanent accounts.
After the closing entries have been made, the temporary account balances will be reflected in the retained earnings.However, an intermediate account called income summary is created.Revenues and expenses are transferred to the income summary account, the balance of which clearly shows the company’s income for the period.Then, Income Summary is closed to retained earnings.The steps of closing entries is as follows:
1.Close the revenue accounts to income summary.
The balance of the revenue account is the total revenue for the accounting period.Since revenue is one of the components of the income calculation, in the last day of the accounting period it is closed to the income summary account.
Once this closing entries is made, the revenue account balance will be zero and the account will be ready to accumulate revenue at the beginning of the next accounting period.
2.Close the expense accounts to income summary.
Expenses are the other component of the income calculation and like revenue, are closed to the income summary account.
After closing, the balance of expenses will be zero and account will be ready for the expenses of the next accounting period.At this point, the credit column of the Income Summary represents the firm’s revenue, the debit column represents the expenses, and balance represents the firm’s income for the period.
3.Close income summary to retained earnings.
The income or loss for the period ultimately adds to or subtracts from the firm’s capital.The retained earnings account is a capital account that accumulates the income from each accounting period.
4.Close dividends to retained earnings.(https://www.daowen.com)
Any capital withdrawals during the period will reduce the capital account balance, so the withdrawal is closed to retained earnings.
The following example shows the closing entries of Company ABC.
Table 7-1
The purpose of the closing entries is twofold.First, it resets revenue, expense, and dividends account balances to zero at the end of each period.This is done so that these accounts can properly measure income and dividends for the next period.Second, it helps in summarizing a period’s revenues and expenses.
To find out the errors that are made during the process of posting the adjustments and closing entries to the ledger accounts, it is necessary to make a new trial balance.
New Words
Phrases and Expressions
retained earnings 留存收益
balance of expenses 费用的余额
trial balance 试算平衡
Exercise 1
Choose the best answer to each of the following questions.
1.What is the main idea of the passage?
A.Trial balance.
B.Temporary accounts.
C.Permanent account.
D.Closing entries.
2.Which account is NOT the temporary account?
A.Rent revenue.
B.Owner, withdrawals.
C.Account receivable.
D.Wages expense.
3.How much is the supplies expense of ABC company?
A.8,236. B.18,480.
C.38,200. D.2,470.
4.According to the text, which of the following statement is NOT true?
A.Close retained earnings to income summary.
B.Close the revenue accounts to income summary.
C.Close dividends to retained earnings.
D.Close the expense accounts to income summary.
5.Which of the following statement below is NOT correct?
A.Closing entries only apply to temporary accounts.
B.Eventually closing entries transfer temporary account balances to retained earnings.
C.Closing entries only apply to permanent accounts.
D.Closing entries means to prepare the accounts for the next period’s transactions.
Exercise 2
Fill in the blanks with the words given below.Change the form where necessary.
1.A company’s_______can consist of cash, investments, specialist knowledge, or business’ reputation.
2.After people_______more wealth, they tend to spend a greater proportion of their incomes.
3.The doctor_______the height of the child.
4._______the costs, the profit would be $25,000.
5.This grocery store is closed_______for redecoration.
6.Our firm was in serious_______difficulties, so I have to find another job.
7.College students should not only know the theory but also know how to_______it to practice.
8._______, the success of the new product depends on the good marketing.
9.We need to monitor the_______of smaller deals.
10.Experts emphasizes that no decisions have yet been made to terminate these programs_______.
Exercise 3
Translate the following sentences into Chinese.
1.Temporary accounts accumulate data related to one accounting period, which include all the information of income statement accounts, the dividends account, and the Income Summary account.
2.The revenue and expenses are transferred to owner’s capital through a closing account, which is called Income Summary.
3.Expense are the cost of the goods and services used up in the process of earning revenue, which include the cost of employees’ salaries, advertising, rent, utilities and the depreciation of such assets as buildings, automobiles and office equipment.
4.At the end of the business year, accountants will set the balances of temporary accounts to zero so that the annual profits measurement can begins with a fresh start each year.
5.After recording all transactions for the year, accountants do the closing entries to determine annual income, to calculate retained earnings, to prepare the balance sheet or to set revenue and expense account balances to zero at the end of the accounting period in preparation for the next year.
课文译文
结 账
结账分录是在会计期末财务报表编制完成之后要进行的一个重要步骤。
临时性账户，或称名义账户，只记录与一个会计期间有关的信息，包括所有的利润表账户、股利账户和收益汇总账户。即收入、费用和资本提款（股利）账户都是临时账户。这些账户为什么称为临时账户？是因为它们在会计期初被启用，只记录该期间的交易和事项，期末时将被结平。这就意味着在下一会计期初临时账户余额为零。结账分录只对临时账户进行结算。
永久性账户，或称实账户，用来记录与一个或多个会计期间有关的经济活动，该类账户的期末余额将被结转到下个期间。资产负债表账户均属于永久性账户，资产、负债和所有者权益的账户余额在期末不需结平。结账分录就是将临时账户的余额转入到永久性账户的分类账。
结账分录完成后，临时账户的余额将反映在留存收益中。但是，需要创建一个收益汇总的中间账户。收入和费用转到收益汇总账户，余额清楚地显示公司在这期间的收益。然后将收益汇总结转到留存收益。结账的过程包括：
1.将收入账户结转到收益汇总账户中
收入账户余额是会计期间的总收入。由于收入是收益所得额计算的组成部分之一，因此，在会计期的最后一日，收入将结转到收益账户中。
一旦完成结算，收入账户余额将为零，并且该账户将为下一期间收入积累做准备。
2.将费用账户结转到收益汇总账户中
费用是收益计算的另一个组成部分。与收入一样，将结转到收益账户中。
结算后，费用的余额将为零，并且该账户将为下一会计期间费用的计算做准备。此时，收益汇总的贷方栏代表公司的收入，借方栏代表费用，余额代表公司在这一期间的收益。
3.将收益汇总结转到留存收益账户
在这期间的收入或亏损最终会增加到公司的资本中去或从公司的资本中扣除。留存收益账户是每个会计期间累计收入的资本账户。
4.将股利账户结转到留存收益账户
在这期间，任何资金提款都将减少资本账户的余额，因此提款账户结转至留存收益账户。
表7-1是对ABC公司的结账分录。
表7-1
结账分录的目的分为两个方面：第一，在期末将收入、费用和股利等账户变成零余额，以便用来记录和确定下一个会计期间的净利润和股利；第二，结账分录有助于汇总本期的收入和费用。
为了避免在调整账户和转结账户过账时的错误，有必要做个新的试算平衡。
References
[1]Internet Center for Management and Business Administration, Inc.Accounting: ClosingEntries [EB/OL].[2017-11-18].http://www.quickmba.com/accounting/fin/ closing-entries/.
[2]孙坤.会计英语[M].大连：东北财经大学出版社，2008.
