Question

What are the four steps involved in the closing process for a merchandising company?

Short answer

The closing process for a merchandising company includes the following four steps:

1. Closing of revenue accounts,
2. Closing of expenses accounts,
3. Closing of income summary, and
4. Closing of dividend balances.

Step-by-step solution

Meaning of Closing Entries

In accounting, closing entries refer to the closing of all the temporary accounts at the end of an accounting period. Under this process,journal entries are passed to close the revenues and expenses accounts and posted tothe income summary account.

Steps included in the closing process

• The revenue accounts containing credit balances are closed in theclosing process.
• In addition, the contra-revenue accounts andexpense accounts containing debit balances are also closed.
• Theincome summary is closed, and the balances are posted intoretained earnings.
• In the end, the retained earnings are adjusted with the debit balances of thedividends.