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Download This documents contains lessons about accounting. and more Study notes Accounting in PDF only on Docsity! SENIOR HIGH SCHOOL Fundamentals of Accountancy, Business and Management 1 (FABM 1) Preparing of Closing Entries Self-Learning Module 4 666 Quarter 4 Fundamentals of Accountancy, Business and Management 1 Quarter 4 – Self-Learning Module 4: Preparing of Closing Entries First Edition, 2020 Republic Act 8293, Section 176 states that no copyright shall subsist in any work of the Government of the Philippines. However, prior approval of the government agency or office wherein the work is created shall be necessary for exploitation of such work for profit. Such agency or office may, among other things, impose as a condition the payment of royalties. Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names, trademarks, etc.) included in this module are owned by their respective copyright holders. Every effort has been exerted to locate and seek permission to use these materials from their respective copyright owners. The publisher and authors do not represent nor claim ownership over them. Published by the Department of Education - Schools Division of Pasig City Printed in the Philippines by Department of Education – Schools Division of Pasig City Development Team of the Self-Learning Module Writer: Jeany Rose P. Agbisit Editor: Edna D. Camarao, PhD., Dennis T. Alex Reviewers: Content/Language: Edna D. Camarao, PhD., Jennifer M. Hobrero Technical: Emmanuel B. Penetrante Management Team: Ma. Evalou Concepcion A. Agustin OIC-Schools Division Superintendent Carolina T. Rivera, CESE OIC-Assistant Schools Division Superintendent Victor M. Javeña EdD Chief, School Governance and Operations Division and Manuel A. Laguerta EdD Chief, Curriculum Implementation Division Education Program Supervisors Librada L. Agon EdD (EPP/TLE/TVL/TVE) Liza A. Alvarez (Science/STEM/SSP) Bernard R. Balitao (AP/HUMSS) Joselito E. Calios (English/SPFL/GAS) Norlyn D. Conde EdD (MAPEH/SPA/SPS/HOPE/A&D/Sports) Wilma Q. Del Rosario (LRMS/ADM) Ma. Teresita E. Herrera EdD (Filipino/GAS/Piling Larang) Perlita M. Ignacio PhD (EsP) Dulce O. Santos PhD (Kindergarten/MTB-MLE) Teresita P. Tagulao EdD (Mathematics/ABM) For the learner: Welcome to Fundamentals of Accountancy, Business and Management 1 Quarter 2 Self Learning Module on Preparing of Closing Entries! This module was designed to provide you with fun and meaningful opportunities for guided and independent learning at your own pace and time. You will be enabled to process the contents of the learning material while being an active learner. This module has the following parts and corresponding icons: Expectations - This points to the set of knowledge and skills that you will learn after completing the module. Pretest - This measures your prior knowledge about the lesson at hand. Recap - This part of the module provides a review of concepts and skills that you already know about a previous lesson. Lesson - This section discusses the topic in the module. Activities - This is a set of activities that you need to perform. Wrap-Up - This section summarizes the concepts and application of the lesson. Valuing - This part integrates a desirable moral value in the lesson. Posttest - This measure how much you have learned from the entire module. After going through this module, you are expected to: 1. define closing entries; 2. enumerate the accounts that need to be closed; 3. differentiate temporary accounts from permanent accounts; 4. summarize the steps in closing the books; and 5. understand and appreciate the usefulness of closing the books. Directions: Write the correct letter of your answer on the space provided. _____1. Statement 1: During the closing process, expenses are transferred to the credit side of the Income Summary account. Statement 2: During the closing process, revenues are transferred to the credit side of the Income Summary account. a. Only Statement 1 is correct. b. Only Statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect. e. Not affect the Owner’s Capital balance _____2. Statement 1: Income Summary is closed with a debit to Income Summary and a credit to the Owner’s Withdrawal account. Statement 2: The Income summary account is used to close the expense and income accounts. a. Only Statement 1 is correct. b. Only Statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect. _____3. Statement 1: Temporary accounts are also called real accounts. Statement 2: Closing entries bring the income and expense accounts to zero at the end of the period. a. Only Statement 1 is correct. b. Only Statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect. _____ 4. An important purpose of closing entries is to a. Adjust the accounts in the ledger. b. Help in preparing the financial statement c. Set nominal account balances to zero to be ready in the next accounting period EXPECTATIONS PRETEST d. Set real account balances to zero to be ready in the next accounting period _____ 5. Which of the following accounts is not found in closing entries? a. Allowance for Doubtful Accounts b. Income Summary c. Rent expense d. Owner’s Drawing Directions: Write the correct letter of your answer on the space provided. _____ 1. Statement 1: Only real accounts are extended to the Statement of Financial position columns of the worksheet. Statement 2: The nominal accounts are extended to the Income Statement columns of the worksheet. a. Only statement 1 is correct. b. Only statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect. _____ 2. Which of the following statements is incorrect concerning the worksheet? a. The worksheet is essentially a working tool for the accountant. b. The worksheet is distributed to management and other interested parties. c. The worksheet cannot be used as a basis for posting to ledger accounts. d. Financial statements can be prepared directly from the worksheet before journalizing and posting the adjusting entries. _____ 3. In a worksheet, net income is entered in the following columns: a. income statement (dr) and statement of financial position (dr) b. income statement (cr) and statement of financial position (dr) c. income statement (dr) and statement of financial position (cr) d. income statement (cr) and statement of financial position (cr) _____ 4. In a worksheet, net loss is entered in the following columns: a. income statement (dr) and statement of financial position (dr) b. income statement (cr) and statement of financial position (dr) c. income statement (dr) and statement of financial position (cr) d. income statement (cr) and statement of financial position (cr) _____ 5. When a net loss has occurred, Income Summary is? a. debited and Owner’s capital is credited b. credited and Owner’s capital is debited c. debited and Owner’s Drawings is credited d. credited and Owner’s Drawings is debited RECAP In the figure 1.1. our closing entry is: Income Summary P244,600 Salary Expense P177,000 Telephone Expense 2,400 Utilities Expense 7,000 Repairs Expense 8,600 Supplies Expense 5,400 Insurance Expense 12,000 Depreciation Expense – Building 10,000 Depreciation Expense – Equip’t. 18,000 Interest Expense 4,200 3. Close the income summary account Determine the balances of the Income Summary account which is a net income or net loss. If a credit balance, representing a net income, close by debiting the Income Summary account and credit to increase the Owner’s Capital account. If a debit balance, representing a net loss, close by crediting the Income Summary account and debit to decrease the Owner’s Capital account. If a debit balance, representing a net loss, close by crediting the Income Summary account and debit to decrease the Owner’s Capital account. The closing entries will be: (net loss) Owner’s Capital xxx Income Summary xxx (net income) Income Summary xxx Owner’s Capital xxx Closing entry: 4. Close the withdrawal account The drawing account which normally is a debit balance is credited to close and debited to the capital account to bring a reduction. The closing entry will be: Owner’s Capital xxx Owner’s Drawing xxx In the worksheet of Beauty Delivery Services’ company there is no drawing so, there is no closing entry. Difference of P695,200 and P244,600. This is the net income that need be closed to have a 0 balance. 450,600₱ Beauty, Capital 244,600₱ 695,200₱ 450,600₱ 450,600₱ '0 Income Summary Normal debit Credit to Debit to Normal credit balance close close balance Total Total Expenses Income Debit to close if net income Normal debit Credit to Withdrawals Normal Credit balance close balance Net Income Each Expense Account Each Revenue Account Income Summary Drawing Account Capital Account In diagram format, it will appear as follows: (1) (2) (3) (4) Activity 1 Preparing the Closing Entries Listed below are the accounts taken from the December 31, 2019 adjusted trial balance of DRA. ABRYL RECTO. ACTIVITIES Cash 1,350,403 Accounts Receivable 205,000 Allowance for Bad Debts 7,550 Prepaid Supplies 11,500 Medical Equipment 1,964,000 Accum. Depreciation-Medical Equipt. 450,131 Vehicle 1,060,000 Accum. Depreciation - Vehicle 336,000 Accounts Payable 43,200 Unearned Professional Fees 47,000 Mortgage Payable 1,230,000 A. Recto, Capital 1,885,555 A. Recto, Drawing 5,000 Professional Fees 800,870 Salary Expense 123,400 Rebt Expense 50,000 Telephone Expense 14,000 Utilities Expense 7,000 Repairs Expense 10,003 Total 4,800,306 4,800,306 December 31, 2019 DRA. ABRYL RECTO Adjusted Trial Balance