Study Unit 10 – Part 2

CLOSING ENTRIES
Accounting an Introduction – JE Myburgh – Chapter 7

Paragraphs:

Study: Ignore:

7.1 to 7.3 N/A

Learning Outcomes

After completing this lecture, you should be able to:

• Record closing entries

• Determine profits
• Use a worksheet in the closing procedures and
• Prepare a simple set of financial statements of a service and trading
entity.
Homework

Refer to the work program

Homework questions are uploaded on moodle in the learning materials folder under each study unit.
These questions will be covered during the tutorial class. You can attempt other questions on moodle.
CLOSING ENTRIES

Closing off nominal

accounts
CLOSING ENTRIES

• Pre-adjustment trial balance

• Adjustments
• Post adjustment trial balance
• Closing entries
• Post closing trial balance
CLOSING ENTRIES

Sections
Trade account
Profit and loss account
PROCESS
First close off gross profit accounts to trade account
Sales
Cost of Sales
 Periodic system – OS, CS, Purchases
TRADE ACCOUNT

Dr Sales
Cr Trade account

Dr Trade account
Cr Cost of sales

Dr Trade account Gross profit

Cr Profit and loss
PROFIT AND LOSS

Dr Income
Cr Profit and loss

Dr Profit and loss

Cr Expenses Profit for year

Dr Profit and loss

Cr Capital

Dr Capital
Cr Drawings
PROCESS

• ALL nominal accounts are now closed off

• Profit was transferred to balance sheet
• Drawings is closed off to owners equity
PROCESS

• Thus I/S is now closed off to BL/Sheet

• In new year I/S thus begins with R0
• Post closing trial balance only has BLS accounts
CLOSING ENTRIES

The 10 Column work sheet

 EXAMPLE
ABS Traders
Post adjustment trial balance on 31 March 2013

DR CR
R R

Capital     108 000

Drawings   65 000  
Vehicles   95 000  
Accumulated
depreciation on
vehicles     35 000
Inventory   47 000  
Debtors   19 000  
Bank   25 000  
Loan     80 000
Creditors     8 000
Sales     120 000
Cost of sales   85 000  
Rent income     12 000
Rent expense   15 000  
Telephone   2 500  

Carriage on purchases   9 500  

    363 000 363 000
EXAMPLE

ABS Traders
Statement of profit or loss and other comprehensive income for the year ended
31 Mar 2013

2013
R
Sales 120 000
Cost of sales -85 000
Gross profit 35 000 Trading account
Other income
Rent income 12 000
Operating expenses
Rent expense -15 000
Telephone -2 500
Profit for the year 29 500
CLOSING JOURNALS

Ref to Adj
Dr Sales J1 R 120 000
Cr Trade account R 120 000

Dr Trade account J2 R 85 000

Cr Cost of sales R 85 000

Dr Inventory J3 R 9 500
Cr Carriage on purchases R 9 500

Dr Trade account J4 R 35 000

Cr Profit and loss R 35 000

Dr Rent income J5 R 12 000

Cr Profit and loss R 12 000

Dr Profit and loss J6 R 17 500

Cr Rent expense R 15 000
Cr Telephone R 2 500

Dr Profit and loss J7 R 29 500

Cr Capital R 29 500

Dr Capital J8 R 65 000
Cr Drawings R 65 000
 EXAMPLE
ABS Traders
Post adjustment trial balance on 31 March 2013

Post Adjust TB Closing entries Post Closing entries TB

DR CR Dr Cr DR CR
R R Workings: R R Ref Jrnls R R

Capital     108 000 +29 500-65 000 35 500 J7&J8   R 72 500

Drawings   65 000   65 000 J8    
Vehicles   95 000   R 95 000  
Accumulated
depreciation on
vehicles     35 000   R 35 000
Inventory   47 000   9 500 J3 R 56 500  
Debtors   19 000   R 19 000  
Bank   25 000   R 25 000  
Loan     80 000   R 80 000
Creditors     8 000   R 8 000
Sales     120 000 120 000 J1&J4    
Cost of sales   85 000   85 000 J2&J4    
Rent income     12 000 12 000 J5    
Rent expense   15 000   15 000 J6    
Telephone   2 500   2 500 J6    

Carriage on purchases   9 500   9 500 J3    

    363 000 363 000 R 195 500 R 195 500

Trading account 120000-85000 = 35 000 (J1 and J2) Only

Profit or loss 35 000+12000-15000-2500 = 29 500 (J4, J5 and J6) remain
with SoFP
ABS Traders
Statement of financial position as at 31 Mar 2013

2013
R
ASSETS
Non current assets
Property, plant and equipment 60 000

Current assets 100 500

Inventory 56 500
Trade and other debtors 19 000
Cash and cash equivalents 25 000

Total assets 160 500

EQUITY AND LIABILITIES

Capital 72 500

Non current liabilities

Loan 80 000

Current liabilities
Trade and other creditors 8 000
________
Total equity and liabilities 160 500