Preparation of Changes in Equity

- All accounts closed to equity account are accounted to solve the Ending Capital

Post- Closing Trial Balance

After closing all nominal accounts or Income Statement accounts, another trial balance
is prepared to prove the equality of debit and credit amounts of accounts remaining in
the General ledger, these remaining accounts are permanent accounts or Balance
Sheet accounts.

Preparation of balance sheet

- Report Form
- Account Form

Reversing Entries
Reversing entry is a journal entry that is being recorded in the General Journal and is done at the
beginning of the accounting period. For company to operate for the first time there will be no
reversing entry at the beginning of the period. The purpose of this is to facilitate the recording
of subsequent transactions.
What accounts are to be reversed?
1. All adjusting entries on accruals are reversed
a. accrued expenses
b. accrued income
2. For deferrals, it is reversed when:
a. Expense account is debited upon prepayment of expenses
b. Income account is credited upon receipt of pre-collected income
EXAMPLE: ON ACCRUALS- ACCRUED EXPENSE
Adjusitng Entry

12/31/2017 Utilities Expense 8,000.00

Accrued Utilities Expense 8,000.00

To record unpaid electric and water bills for the month of December.
Closing Entry

12/31/2017 Income Summary 8,000.00

Utilities Expense 8,000.00

To close utilities expense account
Reversing Entry- Beginning of the next year
 1/1/2018 Accrued Utilities Expense 8,000.00

Utilities Expense 8,000.00

To reverse adjusting entry on 12/31/2017

EXAMPLE: ON PREPAYMENT OF EXPENSE (ONLY WHEN USING EXPENSE METHOD)

JOURNAL ENTRY
5/1/2017 Insurance Expense 12,000.00
Cash 12,000.00
To record prepayment of insurance expense using expense method
Adjusitng Entry
12/31/2017 Prepaid Insurance 8,000.00
Insurance Expense 8,000.00
To adjust insurance expense actually incurred
Closing Entry
12/31/2017 Income Summary 4,000.00
Insurance Expense 4,000.00
To close insurance expense account
Reversing Entry- Beginning of the next year
1/1/2018 Insurance Expense 8,000.00
Prepaid Insurance 8,000.00
To reverse adjusting entry on 12/31/2017