Fundamentals of

SENIOR
Accountancy, Business HIGH
and Management 1 (FABM 1) SCHOOL

Self-Learning

Preparing of Module

Closing Entries
4
666
Quarter 4
Fundamentals of Accountancy, Business and Management 1
Quarter 4 – Self-Learning Module 4: Preparing of Closing Entries
First Edition, 2020

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 Fundamentals of
SENIOR
Accountancy, Business HIGH
and Management 1 SCHOOL

(FABM 1)

Self-Learning

Preparing of
Module

4
Closing Entries
12
Quarter 4
Introductory Message
For the facilitator:

Welcome to the Senior High School – Fundamentals of Accountancy, Business

and Management 1 Quarter 4 Self Learning Module on Preparing of Closing Entries!

This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character while taking into
consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the
body of the module:

Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their own learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
For the learner:

Welcome to Fundamentals of Accountancy, Business and Management 1

Quarter 2 Self Learning Module on Preparing of Closing Entries!

This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.

This module has the following parts and corresponding icons:

Expectations - This points to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measure how much you have learned from the
entire module.
 EXPECTATIONS

After going through this module, you are expected to:

1. define closing entries;

2. enumerate the accounts that need to be closed;
3. differentiate temporary accounts from permanent accounts;
4. summarize the steps in closing the books; and
5. understand and appreciate the usefulness of closing the books.

PRETEST

Directions: Write the correct letter of your answer on the space provided.

_____1. Statement 1: During the closing process, expenses are transferred to the
credit side of the Income Summary account.
Statement 2: During the closing process, revenues are transferred to the credit
side of the Income Summary account.
a. Only Statement 1 is correct.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
e. Not affect the Owner’s Capital balance
_____2. Statement 1: Income Summary is closed with a debit to Income Summary
and a credit to the Owner’s Withdrawal account.
Statement 2: The Income summary account is used to close the expense and
income accounts.
a. Only Statement 1 is correct.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
_____3. Statement 1: Temporary accounts are also called real accounts.
Statement 2: Closing entries bring the income and expense accounts to zero
at the end of the period.
a. Only Statement 1 is correct.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
_____ 4. An important purpose of closing entries is to
a. Adjust the accounts in the ledger.
b. Help in preparing the financial statement
c. Set nominal account balances to zero to be ready in the next accounting
period
 d. Set real account balances to zero to be ready in the next accounting period
_____ 5. Which of the following accounts is not found in closing entries?
a. Allowance for Doubtful Accounts
b. Income Summary
c. Rent expense
d. Owner’s Drawing

RECAP

Directions: Write the correct letter of your answer on the space provided.
_____ 1. Statement 1: Only real accounts are extended to the Statement of Financial
position columns of the worksheet.
Statement 2: The nominal accounts are extended to the Income Statement
columns of the worksheet.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
_____ 2. Which of the following statements is incorrect concerning the worksheet?
a. The worksheet is essentially a working tool for the accountant.
b. The worksheet is distributed to management and other interested parties.
c. The worksheet cannot be used as a basis for posting to ledger accounts.
d. Financial statements can be prepared directly from the worksheet before
journalizing and posting the adjusting entries.
_____ 3. In a worksheet, net income is entered in the following columns:
a. income statement (dr) and statement of financial position (dr)
b. income statement (cr) and statement of financial position (dr)
c. income statement (dr) and statement of financial position (cr)
d. income statement (cr) and statement of financial position (cr)
_____ 4. In a worksheet, net loss is entered in the following columns:
a. income statement (dr) and statement of financial position (dr)
b. income statement (cr) and statement of financial position (dr)
c. income statement (dr) and statement of financial position (cr)
d. income statement (cr) and statement of financial position (cr)
_____ 5. When a net loss has occurred, Income Summary is?
a. debited and Owner’s capital is credited
b. credited and Owner’s capital is debited
c. debited and Owner’s Drawings is credited
d. credited and Owner’s Drawings is debited
 LESSON

As an accountant or bookkeeper of a company, it is necessary to distinguish

between temporary and permanent accounts during the closing of books.

When closing the books in accounting terminology it does not mean to close
the book literally but it is bringing the temporary or nominal account balances to
zero.

Temporary accounts or nominal accounts are accounts that included in

the income statement and in the statement of changes in owner’s equity particularly
the drawing account and that must be are closed. They relate only to a given
accounting period.

However, permanent or real accounts relate to one or more future

accounting periods. They consist of all statement of financial position (balance sheet)
accounts, including the owner’s capital. Permanent accounts are not closed. Instead,
their balances are carried forward into the next accounting period.

CLOSING ENTRIES

❖ Are entries prepared at the end of the accounting period to bring the
balances of the temporary or nominal accounts to zero, so that they will
be ready to receive data for the next accounting period.

❖ In the closing process, a clearing account called “Income Summary”

is used.

Let us have your answer in your previous module on Worksheet. Below is the
answer in your previous activity. We will use the data in preparing the closing entries
for your easy reference.
 BEAUTY DELIVERY SERVICES
WORKSHEET
December 31, 2019
UNADJUSTED TRIAL BALANCE ADJUSTMENTS ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET
ACCOUNTS DR CR DR CR DR CR DR CR DR CR
Cash 126,800 126,800 126,800
Accounts Receivable 28,200 10,000 38,200 38,200
Supplies 17,800 5,400 12,400 12,400
Prepaid Insurance 38,000 12,000 26,000 26,000
Land 960,000 960,000 960,000
Buildings 1,640,000 1,640,000 1,640,000
Accum. Depreciation- buildings 379,200 10,000 389,200 389,200
Equipment 1,060,000 1,060,000 1,060,000
Accum. Depreciation - equipment 336,000 18,000 354,000 354,000
Accounts Payable 43,200 43,200 43,200
Unearned Delivery Fees 42,000 16,000 26,000 26,000
Mortgage Payable 1,160,000 1,160,000 1,160,000
Beauty, Capital 1,432,600 1,432,600 1,432,600
Delivery Fees Earned 669,200 16,000 695,200 695,200
10,000
Salary Expense 173,400 3,600 177,000 177,000
Telephone Expense 2,400 2,400 2,400
Utilities Expense 7,000 7,000 7,000
Repairs Expense 8,600 8,600 8,600
Total 4,062,200 4,062,200

Supplies Expense 5,400 5,400 5,400

Insurance Expense 12,000 12,000 12,000
Depreciation Expense - Building 10,000 10,000 10,000
Depreciation Expense - Equipment 18,000 18,000 18,000
Salary Payable 3,600 3,600 3,600
Interest Expense 4,200 4,200 4,200
Interest Payable 4,200 4,200 4,200
Total 79,200 79,200 4,108,000 4,108,000 244,600 695,200 3,863,400 3,412,800
Net Income - 450,600 450,600
Total 695,200 695,200 3,863,400 3,863,400

Figure 1.1 Worksheet in the previous module

STEPS IN CLOSING ENTRIES

1. Close the income/revenue accounts

The revenue account such as Delivery Fees Earned which normally is
credit balance should be closed on the debit side and credited to the Income
Summary Account.
Closing Entry:
Revenue Account xxx
Income Summary xxx

In the figure 1.1. our closing entry is:

Delivery Fees Earned P695,200
Income Summary P695,200

2. Close the expense accounts

The expenses account such as Salaries Expense and Telephone
Expenses which normally are debit balances should be closed on the credit
side and debited to the Income Summary account.
Closing Entry:
Income Summary xxx
Each expense account xxx
 In the figure 1.1. our closing entry is:
Income Summary P244,600
Salary Expense P177,000
Telephone Expense 2,400
Utilities Expense 7,000
Repairs Expense 8,600
Supplies Expense 5,400
Insurance Expense 12,000
Depreciation Expense – Building 10,000
Depreciation Expense – Equip’t. 18,000
Interest Expense 4,200

3. Close the income summary account

Determine the balances of the Income Summary account which is a net
income or net loss. If a credit balance, representing a net income, close by
debiting the Income Summary account and credit to increase the Owner’s
Capital account. If a debit balance, representing a net loss, close by crediting
the Income Summary account and debit to decrease the Owner’s Capital
account. If a debit balance, representing a net loss, close by crediting the
Income Summary account and debit to decrease the Owner’s Capital account.
The closing entries will be:
(net loss) Owner’s Capital xxx
Income Summary xxx
(net income) Income Summary xxx
Owner’s Capital xxx

Closing entry:
Income Summary Beauty, Capital
₱ 244,600 ₱ 695,200 ₱ 450,600
₱ 450,600 ₱ 450,600
'0

Difference of P695,200 and P244,600. This is the

net income that need be closed to have a 0
balance.

4. Close the withdrawal account

The drawing account which normally is a debit balance is credited to
close and debited to the capital account to bring a reduction.
The closing entry will be:
Owner’s Capital xxx
Owner’s Drawing xxx

In the worksheet of Beauty Delivery Services’ company there is no

drawing so, there is no closing entry.
In diagram format, it will appear as follows:

Each Expense Account Each Revenue Account

Normal debit Credit to Debit to Normal credit
balance close close balance

Income Summary (1)

(2) Total Total
Expenses Income
Debit to close
if net income

(3)
Drawing Account Capital Account
Normal debit Credit to Withdrawals Normal Credit
balance close balance
Net Income

(4)
 ACTIVITIES

Activity 1
Preparing the Closing Entries
Listed below are the accounts taken from the December 31, 2019 adjusted trial
balance of DRA. ABRYL RECTO.

DRA. ABRYL RECTO

Adjusted Trial Balance
December 31, 2019
Cash 1,350,403
Accounts Receivable 205,000
Allowance for Bad Debts 7,550
Prepaid Supplies 11,500
Medical Equipment 1,964,000
Accum. Depreciation-Medical Equipt. 450,131
Vehicle 1,060,000
Accum. Depreciation - Vehicle 336,000
Accounts Payable 43,200
Unearned Professional Fees 47,000
Mortgage Payable 1,230,000
A. Recto, Capital 1,885,555
A. Recto, Drawing 5,000
Professional Fees 800,870
Salary Expense 123,400
Rebt Expense 50,000
Telephone Expense 14,000
Utilities Expense 7,000
Repairs Expense 10,003
Total 4,800,306 4,800,306
Activity 2
Analysis of the Income Summary Account
The following is the income summary account of Alyana Services on December
31, 2019 after all revenue and expenses have been closed to the account.

Income Summary
₱ 284,000 ₱ 196,400

Required:

1. What do the figures in the account represent?

2. Close the income summary account.

WRAP-UP
To summarize what you have learned from the lesson, answer the following
questions:

1. differentiate nominal accounts from real accounts;

2. summarize the process in closing entries; and

3. why it is important to close the nominal accounts?

VALUING

➢ What are your main takeaways in today’s lesson?

➢ Reflect on the significance of closing the books.
 POSTTEST

Directions: Identify each item below. Write your answer before the item number.

_____1. The entry to close the withdrawal account is

a. Debit Income Summary and credit Owner’s Withdrawal
b. Debit Owner’s Capital and credit Owner’s Withdrawal
c. Debit Owner’s Withdrawal and credit Income Summary
d. Debit Owner’s Withdrawal and credit Owner’s Capital
_____ 2. The purpose of the closing entries is to
a. Bring the temporary accounts to zero
b. Bring the permanent accounts to zero
c. Update the temporary accounts
d. Update the permanent accounts
_____ 3. A clearing account used only at the end of the accounting period to
summarize revenues and expenses for the period
a. Asset Summary
b. Capital Summary
c. Expense summary
d. Income summary
_____4. The closing entry for Rent Expense, with a balance of P24,000 is
a. Salaries Expense 24,000
Income Summary 24,000
b. Salaries Expense 24,000
Salaries Payable 24,000
c. Income Summary 24,000
Salaries Expense 24,000
d. Salaries Payable 24,000
Salaries Expene 24,000
_____ 5. The following accounts are closed except for
a. Commission Income
b. Income summary
c. Owner’s Capital
d. Owner’s Drawing
 KEY TO CORRECTION

Journal Entry 5.
Book Value 4.
Value Parted With 3.
Non-accountable 2.
Service Business 1.

RECAP

5. Service Revenue: ₱14,000 (CR)

4. A/P: ₱5,250 (CR)
3. Supplies: ₱8,750 (DR) 5. Duality and Equilibrium Concepts
5. TRUE 2. A/R : ₱3,500 (DR) 4. Posting
4. TRUE 1. Cash: ₱7,000 (DR) 3. Compound Journal Entry
ACTIVITY 2 2. Journalizing
3. TRUE
1. Accounting Cycle
2. TRUE POSTTEST
₱80,000=₱0+₱50,000+₱30,000-₱0
1. TRUE Assets =L+OE+Income-Expenses
PRETEST ACTIVITY 1:

References

Ballada, W. 2017. Fundamentals of Accountancy, Business, and Management 1.

VDomDane Publishers.

Banggawan, RB. Asuncion, DJ. 2017. Fundamentals of Accountancy, Business, and

Management 1. Real Excellence Publishing.

Ferrer, RC. Millan, CV. 2017. Fundamentals of Accountancy, Business, and

Management 1. Bandolin Enterprise. San Juan, DA. 2018. Fundamentals
of Accounting. Elmoer Publishing

Rabo, JS. Tugas,FC.Salendrez, HE. 2016. Fundamentals of Accountancy, Business,

and Management 1. Vibal Group Inc.

Manuel, Zenaida Vera-Cruz 18th Edition Accounting Process_Basic Concepts and

Procedures

Epstein, Lita, MBA Bookkeeping Workbook for Dummies. Wiley Publishing, Inc.

Hernane, Milagros B.,et.al 2014. Principles of Accounting. Allen Adrian Books Inc.

Valencia, Edwin G. 4th Edition. Basic Accounting (Concepts, Principles, Procedures and
Applications) . Valencia Educational Supply