CLOSING ENTRIES

AND
REVERSING ENTRIES
JOHN G. PAGADDUT, CPA, LPT, MSA
Learning Outcome

1. Journalize and post closing entries and reversing entries.

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CLOSING
ENTRIES
are entries that zero out
temporary accounts whose balances
are transferred to permanent capital
account at the end of the period.

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 temporary permanent
accounts accounts

nominal real

accounts whose balance do not carry accounts whose balance carry over
over to the next accounting period the next accounting period

SCI SFP
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Income Summary
A temporary account that initially closes
revenue and expense accounts.

“Revenue and Expense Summary”

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Income Summary Net Income arises when Income Summary
results to Credit Balance.

Being a temporary account,

Income Summary is finally closed to the
Owner’s Equity

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 Expense Accounts Revenue Accounts

Balance xxx C.E. xxx C.E. xxx Balance xxx

00.00 00.00
Income Summary

C.E. xxx C.E. xxx

To close Expense Accounts To close Revenue Accounts

Income Summary xx Revenue xx

Expense xx Income Summary xx

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 Owner’s Drawing Income Summary

Balance xxx C.E. xxx C.E. xxx C.E. xxx

00.00 C.E. xxx Balance xxx

Owner’s Capital
00.00
C.E. xxx Balance xxx

C.E. xxx

Balance xxx

To close Owner’s Drawing To close Income Summary

Owner’s Capital xx Income Summary (Profit) xx

Owner’s Drawing xx Owner’s Capital xx

PAGADDUT, 2020
Service Revenue 290,000
Income Summary 290,000

Income Summary 205,000

Salaries Expense 70,000
Rent Expense 40,000
Repairs Expense 30,000
Utility Expense 30,000
Supplies Expense 20,000
Depreciation Expense 10,000
Interest Expense 2,500
Bad Debts Expense 2,500

Income Summary 85,000

Wigan Capital 85,000

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 Optional as they do not
affect the account balances
in the financial statements.
Reversing
Entries

Journalized at the
beginning of the
next accounting period.

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Reversing
Entries

accruals (accrued expenses or revenues)

prepayments under EXPENSE method

pre-collections under INCOME method

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Assessment Task

Please see separate activity.

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