COMPLETING THE

ACCOUNTING
CYCLE

Presented by:
MS. ALICIA G. BAÑAS, Ph.D, CPA, LPT, CSEE

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Learning Objectives
1. Use the worksheet to
prepare financial statements
2. Explain the purpose of
closing journal entries
3. Prepare the post-closing
trial balance

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Learning Objective 1
Use the worksheet to prepare
financial statements

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How Could a Worksheet Help in
Preparing Financial Statements?
The first four sections of the worksheet (see Chapter F:3)
helped determine the adjusted trial balance, from which we
prepare financial statements.
Income Statement
Includes only revenue and expense accounts
Balance Sheet
Includes asset, liability, and equity accounts except
revenues and expenses
Determine Net Income or Net Loss
The balancing amount for the income statement and
balance sheet sections (will be the same amount)

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Exhibit F:4-4 Completed Worksheet

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Learning Objective 2
Explain the purpose of,
journalize, and post closing
entries

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What Is the Closing Process, and How
Do We Close the Accounts? (1 of 3)
The closing process zeroes out all revenue and expense
accounts in order to measure each period’s net income
separately from all other periods.
Temporary accounts relate to a particular accounting
period and are closed at the end of that period.
Revenues, expenses, Income Summary, and Owner,
Withdrawal accounts
Permanent accounts are not closed at the end of the
period.
Asset, liability, and Owner, Capital accounts

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What Is the Closing Process, and How
Do We Close the Accounts? (2 of 3)
Closing entries transfer revenues, expenses, and
Owner, Withdrawals to Owner, Capital.
Revenues and expenses may be transferred first to an
account titled Income Summary.
Income Summary is a temporary account that
summarizes the net income (or net loss) for the
period.

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What Is the Closing Process, and How
Do We Close the Accounts? (3 of 3)
Exhibit F:4-5 The Closing Process

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Closing Temporary Accounts—Net
Income for the Period (1 of 7)
Step 1: Make the revenue accounts equal zero via the Income
Summary account.
Example: Smart Touch Learning has a P17,500 credit balance in
Service Revenue. The closing entry would be:

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Closing Temporary Accounts—Net
Income for the Period (2 of 7)
Step 2: Make expense accounts equal zero via the Income
Summary account.
Example: Smart Touch Learning has a P3,000 debit
balance in Rent Expense account. It will be closed with a
credit to Rent Expense:

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Closing Temporary Accounts—Net
Income for the Period (3 of 7)
In a compound closing entry, each individual expense account is
credited and the Income Summary account is debited for the total
amount of expenses:

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Closing Temporary Accounts—Net
Income for the Period (4 of 7)
The Income Summary T-account after closing revenues
and expenses is:

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Closing Temporary Accounts—Net
Income for the Period (5 of 7)
Step 3: Make the Income Summary account equal zero via the
Owner, Capital account.
Example: Smart Touch Learning’s P8,550 credit balance in the
Income Summary account will be closed to Bright, Capital:

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Closing Temporary Accounts—Net
Income for the Period (6 of 7)
Step 4: Make the Owner, Withdrawals account equal zero via the
Bright, Capital account.
Example: Smart Touch Learning’s P5,000 debit balance in the
Bright, Withdrawals account will be closed to Bright, Capital:

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Closing Temporary Accounts—Net
Income for the Period (7 of 7)
Smart Touch Learning’s P5,000 debit balance in the Bright,
Withdrawals account will be closed to Bright, Capital:

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Closing Temporary Accounts—Net
Loss for the Period
If a business had a net loss for the period, the closing entry
to close the Income Summary account would be different.
Example: If a business had a net loss of P2,000:

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Closing Temporary Accounts—
Summary (1 of 2)
Exhibit F:4-6
Journalizing and Posting
Closing Entries
Panel A: Journalizing

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Closing Temporary Accounts—
Summary (2 of 2)
[Exhibit F:4-6 continued] Panel B: Posting

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Learning Objective 3
Prepare the post-closing trial
balance

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How Do We Prepare a Post-Closing
Trial Balance? (1 of 2)
The accounting cycle ends with a post-closing trial
balance:
A list of the accounts and their balances at the end of the
period, after journalizing and posting the closing entries
Includes only permanent accounts

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How Do We Prepare a Post-Closing
Trial Balance? (2 of 2)
Exhibit F:4-7 Post-Closing Trial Balance

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Copyright

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