CLOSING

CLOSING THE
THE
ACCOUNTING
ACCOUNTING
CYCLE
CYCLE
 CLOSING
CLOSING ENTRIES
ENTRIES
-update the owner’s capital account at the end of the
period

-they also eliminate the balances of the nominal

accounts to ready them for the next accounting
period.
 CLOSING
CLOSING ENTRIES
ENTRIES
-to close a temporary account, an entry is made to
make its balance become zero.

-Closing transfers the balances of the temporary

accounts to the capital account
 INCOME
INCOME SUMMARY
SUMMARY
-considered to be a summary account
-is used to close the income and expense accounts
-the temporary account used to close the nominal
accounts.
EXAMPLE
EXAMPLE

BALANCE
TRIAL
STEPS
STEPS IN
IN CLOSING
CLOSING
THE
THE ACCOUNTS
ACCOUNTS
STEP1CLOSING THE
CLOSING THE INCOME ACCOUNTS
INCOME ACCOUNTS
Since the income accounts have nominal credit balances, each revenue account
will have to be debited in the amount of its balance to bring their balances to
zero. The credit made to the income summary accounts

2016
May 31 Painting Revenue 210,000
Income Summary 210,000
To close income accounts
STEP2CLOSING THE
CLOSING THE EXPENSE ACCOUNTS
EXPENSE ACCOUNTS
Expense accounts have normal debit balances, each of these will have to be credited to close the account. Thus,
a compound entry is needed considering the number of expense accounts. The total of all expense accounts
is then debited to income summary. The entry to close the expense accounts of Anime World Gallery.

2016
May 31 Income Summary 33,040
Salaries Expense 4,000
Utilities Expense 5,040
Insurance Expense 2,700
Rent Expense 12,000
Art Supplies Expense 1,800
Depreciation Expense 6,000
Bad debts Expense 1,500
To close expense accounts
STEP3
CLOSING THE INCOME
CLOSE THE INCOME SUMMARY TO CAPITAL
SUMMARY TO CAPITAL
Notice that after posting the entries involving the income and expense accounts, the balance of
the income summary account is exactly the net income or net loss for the period. A credit
balance indicates a net income and a debit balance indicates a net loss. Regardless of
whether the business yields a net income or a net loss, the income summary account must
be closed to the capital account. For Anime World Gallery, the entry is.

May 31 Income Summary 176,960

Ong, Capital 176,960
To close income summary to capital.

Note: The balancing figure of the income summary account to be closed to capital is the net income or net loss of the business. In the
case of Anime World Gallery, ₱176,960 is the amount of net income.
 CLOSE THE
STEP4
CLOSEDRAWING
CAPITAL
TO
THE DRAWING TO CAPITAL
The drawing account represents the amount withdrawn by the owner either in cash
and non-cash assets for personal use. Its is for this reason that the debit
balance of the drawing accounts should be closed to capital. The following
entry is an illustration using the Anime World Gallery:

May 31 Ong, Capital 18,000

Ong, Drawing 18,000
To close drawing account to capital.
THE
THE POST-CLOSING
POST-CLOSING
TRIAL
TRIAL BALANCE
BALANCE
 POST-CLOSING
POST-CLOSING TRIAL BALANCE
TRIAL BALANCE
-is prepared from the general ledger accounts after the closing
entries have been posted.

-Confirms the equality of the debits and credits.

-It contains only balance sheet items such as assets, liabilities,

and ending capital.
POST-CLOSING
TRIAL BALANCE
EXAMPLE
EXAMPLE
 POST-CLOSING
POST-CLOSING TRIAL BALANCE
TRIAL BALANCE
Note: These are the ledger balances of Anime World Gallery after the closing entries. Notice that
the drawing, revenue and expense accounts are already closed to the capital account. Presented
below is the T-account of Ong, Capital with the closing entries in lesson 6-1 posted.

Ong, Capital

5/31 18,000 5/2 300,000

5/31 176,960
18,000 476,960
Bal. 458,960
 POST-CLOSING
POST-CLOSING TRIAL BALANCE
TRIAL BALANCE
Explanation:

1. The May 2 credit of ₱ 300,000 is the beginning capital.

2. The May 31 credit of ₱176,960 is closing entry no. 3 on page 151-152 where
the income summary was closed to capital.
3. The May 31 debit of ₱18,000 is closing entry no. 4 on page 152 where the
drawing account was closed to capital.
4. The ending balance of ₱458,960 is the balance of Ong, Capital in the post
closing trial balance after the income summary and the drawing account were
closed to capital.
REVERSING
REVERSING
ENTRIES
ENTRIES
 REVERSING
REVERSING ENTRIES
ENTRIES -are made to simplify the accounting process.

-are optional and are not used in connection with all adjusting entries.

-is simplify a journal entry that is just the opposite of the adjusting entry made at the end of
preceding accounting period.

Following are the adjusting entries that can be reversed.

1. Prepayment (expense method)
2. Unearned Revenues (income method)
3. Accrued expense
4. Accrued income
 REVERSING
REVERSING ENTRIES
ENTRIES
EXAMPLE
Adjusting Entry

2016
May 31 Utilities Expense 4,500
Utilities Payable 4,500
To record unpaid utilities
 REVERSING
REVERSING ENTRIES
ENTRIES
Reversing Entry

2016
June 1 Utilities Payable 4,500
Utilities Expense 4,500
To record the accrual of utilities made last May 31
 REVERSING
REVERSING ENTRIES
ENTRIES
Payment Entry

2016
June 4 Utilities Payable 4,500
Cash 4,500
To record payment of utilities
 REVERSING
REVERSING ENTRIES
ENTRIES
Note: The payment of utilities expense made on June 4 is simplify am ordinary
general journal entry. The entry is simple because of the reversing entry
made at the beginning of the accounting period which is June 1. Reversing
entries apply to accruals and deferrals that use the nominal account.