What are the steps for closing entries, Accounting Basics

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What are the steps for Closing entries

There is a certain order that should be used to close accounts: REID

1.  Balance of the total Revenue to Income Summary

2.  Balance of the total Expenses to Income Summary

3.  Balance of the Income Summary account to the Capital account. This would be the Net Income or Net Loss amount.

4.  Balance of the owner's Drawing account is closed directly to Capital account. This isn't used in the determination of net loss or gain.

You can check the accuracy of closing entries by comparing the balance of Owner's Equity capital account, after posting, with ending balance of capital as reported on Statement of Owner's Equity-amounts MUST be the same.

 


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