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Lecture 9 - Closing Entries 03.24.2020

Closing entries are made at the end of an accounting period to close nominal accounts and prepare financial statements. There are 5 steps to closing entries: 1) Close revenue accounts to an income/expense summary account, 2) Close cost accounts to the summary account and set up ending inventory, 3) Close expense accounts to the summary account, 4) Close the summary account to capital, and 5) Close any drawing accounts to capital. This process transfers the period's net income or loss to the capital account to start the new period.

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John Carlo Amodia
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40 views

Lecture 9 - Closing Entries 03.24.2020

Closing entries are made at the end of an accounting period to close nominal accounts and prepare financial statements. There are 5 steps to closing entries: 1) Close revenue accounts to an income/expense summary account, 2) Close cost accounts to the summary account and set up ending inventory, 3) Close expense accounts to the summary account, 4) Close the summary account to capital, and 5) Close any drawing accounts to capital. This process transfers the period's net income or loss to the capital account to start the new period.

Uploaded by

John Carlo Amodia
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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closing

entries

by Angelo Ellica Jadraque, CPA, MM


Purpose of Closing Entries:
- To close the results of operation of
the covered period and prepared
the accounting books for the next
accounting period;

- Only Nominal Accounts are closed;


NOMINAL ACCOUNTS
- Are the income statement
accounts; and
- These accounts accumulate
balances/transactions within the
accounting period covered and are
not carried-forward to the next
accounting period.
- These accounts will have “zero”
balances at the end of the
accounting period after closing
entries.
REAL ACCOUNTS
- Are Statement of Financial Position
accounts;

- These accounts are not closed at


the end of accounting period. Their
balances are carried-forward to the
next accounting period.
STEPS IN CLOSING ENTRIES
Step 1:
Close Revenue items to
Income/Expense Summary
account.
Income/Expense Summary Account

- A temporary account used to


facilitate the closing of entries.
STEPS IN CLOSING ENTRIES
Step 1: Closing revenue to Income and
Expense Summary
e.g. (Closing Entries for RST Enterprise)

Sales …………………. P1,850,000

Sales Returns & Allowances……..… 4,500


Income & Expense Summary …...…………2,845,500

To close revenue to income & expense


summary account.
STEPS IN CLOSING ENTRIES
Step 2: Closing Costs to Income and Expense Summary and
Set up Merchandise Inventory End.

e.g.
Merchandise Inventory, End ……….…. P720,000
Purchase Returns & Allowances………..… 3,800

Income & Expense Summary …………. 1,463,200


Purchases ……………….………………….. P1,985,000
Merchandise Inventory, Beg. ……........... 190,000
Freight-in ………………………. ………........... 12,000
To close costs to Income & Expense summary
and set up the ending inventory.
STEPS IN CLOSING ENTRIES
Step 3: Closing Expenses to Income and
Expense Summary
e.g.
Income & Expense Summary ………....... 488,500
Salaries & Wages…………………………….. P298,000
Taxes & Licenses……………… ………........….. 14,000
Utilities Expense …………….…….. ........... 72,500
Rent Expense …………….…….. ................ 49,000
Supplies Expense ………….. ...................... 5,000
Depreciation Expense – F&F……. ............. 20,000
Depreciation Expense – Del. Equip............ 30,000
To close Expenses to income & expense
summary account.
T-ACCOUNTS
Income & Expense Summary Tano, Capital
C.E. 2 P1,463,200 C.E. 1 P 2,845,500 Beg. Bal. P822,700

C.E. 3 P 488,500
P1,951,700 P2,845,500

P893,800

Net Income
STEPS IN CLOSING ENTRIES
Step 4: Closing Income and Expense
Summary to Capital Account

e.g.
Income & Expense Summary ………...... P893,800

Tano, Capital……………………………….. P893,800

To close Income & Expense Summery to


Capital account.
T-ACCOUNTS
Income & Expense Summary
C.E. 2 P1,463,200 C.E. 1 P 2,845,500
C.E. 3 P 488,500
P1,951,700 P2,845,500 Tano, Capital
C.E. 4 P893,800 P893,800 Beg. Bal. P822,700

C.E. 4 P893,800

Net Income
STEPS IN CLOSING ENTRIES

Step 5: Closing Drawing to Capital Account


e.g.
Tano, Capital……………………………….. P30,000
Tano, Drawing………………………………...... P30,000
To close Drawing to Capital account.
T-ACCOUNTS
Tano, Drawing
Beg. Bal P30,000 C.E. 5 P30,000

TAno, Capital
Beg. Bal. P822,700
C.E. 5 P30,000
C.E. 4 P893,800
P30,000 P1,716,500
P1,686,500

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