Bookkeeping : Posting of closing entries

POSTING  

The process of transferring information from the journal to the ledger for the purpose of summarizing is called posting. Primarily a clerical task, posting is ordinarily carried out in the following steps:

1.  Record the amount and date.  The date and the amounts of the debits and credits
are entered in the appropriate accounts.

2.  Record the posting reference in the account.  The number of the journal page is entered in the account.

3.  Record the posting in the journal.  For cross-referencing, the code number of the account is now entered in the P.R. column of the journal (solid line).


Preparing closing Entries

  At the end of the accounting fiscal year, the balances of the nominal accounts are to be transferred from the trial balance to the profit and loss account through closing entries, these entries produce a zero balance in each nominal account.

Journalizing and posting closing entries is an essential step in the accounting cycle.

Separate closing entries could be prepared for each nominal account, but the following two
entries satisfy the desired result:

1.  Debit each revenue account for its balance and credit profit and loss account for total revenues.

2.  Debit profit and loss account for total expenses and credit each expense account for its balance.

Below, is closing entries illustration:

To illustrate the journalizing and posting of  closing entries, we will assume that  Banana, lawyer closes his books monthly.  The closing entries at December  ٣١ are shown in the following illustration.

Posting of closing entries

  The posting of the closing entries are  shown in the following accounts, all the nominal accounts have zero balances.

*   Note that profit and loss account is used only in closing.  No entries are journalized and posted to this account during the year.
 

Preparation of income statement

  The income statement is designed the  report the results of earning activities
(operations) for a specific time period such as a month, quarter, or year.

Net income for the period is the excess of revenues over expenses for that time.

The heading of the income statement indicates the name of the business, the name of the statement, and the time period covered by the statement.   Below an illustration of  Banana lawyer income statement for the month of December 2011.

Banana,  Lawyer
Income Statement
For the month of December 2011

Note :

1.  Revenues are defined as in flows of assets either from the sale of goods or the performance of services.
2.  Expenses are defined as out flows or other uses of assets to produce revenue.

٣.  Net income is defined as the excess of revenues over expenses, and will be transferred to the balance sheet as either profit or loss.

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Bookkeeping course