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Principles of Accounting (MGT109-1)

E
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Yuchengco School of Business and Management
Module 5
Closing the Accounts

The closing process prepares accounts for recording the transactions and the events of the next period
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The purpose of the closing process is twofold
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This is done so that these accounts can properly measure
income and withdrawals for the next period
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Temporary and Permanent Accounts
Temporary (or nominal) accounts accumulate data related to one accounting period
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They are
temporary because the accounts are opened at the beginning of a period, used to record transactions
and events for that period, and then closed at the end of the period
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Permanent (or real) accounts report on activities related to one or more future accounting periods
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These asset, liability, and equity accounts are not closed
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Closing entries are necessary at the end of each
period after financial statements are prepared because:
● Revenue, expense, and withdrawals accounts must begin each period with zero balances
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Steps in Closing Temporary Accounts
Step 1: Close Credit Balances in Revenue Accounts to Income Summary
Step 2: Close Debit Balances in Expense Accounts to Income Summary
Step 3: Close Income Summary to Owner’s Capital
Step 4: Close Withdrawals Account to Owner’s Capital
Post-Closing Trial Balance
A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all
closing entries have been journalized and posted
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These
accounts comprise a company’s assets, liabilities, and equity, which are identical to those in the balance
sheet
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Principles of Accounting (MGT109-1)

E
...
Yuchengco School of Business and Management
Module 6
Correcting Entries

Errors may occur in the recording process
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If the accounting records are free of errors, no
correcting entries are needed
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First,
adjusting entries are an integral part of the accounting cycle
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Second, companies journalize and post adjustments only at
the end of an accounting period
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Finally, adjusting entries always affect at least one balance sheet account and one income statement
account
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Correcting entries must be posted before closing entries
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journalized and posted a P500 cash collection on account from a customer as a
debit to Cash P500 and a credit to Service Revenue P500
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CASE 2
On May 18, Mercato purchased on account office equipment costing P450
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The
error was discovered on June 3, when Mercato received the monthly statement for May from the creditor
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At Batavia Company, the following errors were discovered after the transactions had been journalized
and posted
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1
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2
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Required: Prepare correcting entries
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Mason Company has an inexperienced accountant
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All entries were posted as made
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A payment on account of P630 to a creditor was debited to Accounts Payable P360 and credited to
Cash P360
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The purchase of supplies on account for P560 was debited to Equipment P56 and credited to
Accounts Payable P56
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A P400 withdrawal of cash for M
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Required: Prepare correcting entries

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