Preparing

worksheets
Closing entries
Reversing entries

LEARNING
OBJECTIVES
1. Describe all the steps in the complete
accounting cycle
2. The Use of Worksheets
3. Steps in the preparation of worksheet
4. Explain why temporary ledger accounts need to
be closed
5. Explain how to record adjusting entries from
the worksheet
6. Describe the closing process, enter closing
entries in accounting records and prepare a
post-closing trial balance
7. Account for accrual items in subsequent

COMPLETE
ACCOUNTING CYCLE
1. Recognise and
record transactions

Source
documents

2. Journalise
transaction

General journal

3. Post to ledger
accounts

General ledger

4. Prepare unadjusted
Trial balance
trial balance of
(unadjusted)
general ledger
Continued Next Slide

COMPLETE
ACCOUNTING CYCLE
5. Determine adjusting
entries and
journalise

General journal

6. Post adjusting
entries to general
ledger

General ledger
(accounts
adjusted)
Trial balance
(adjusted)

7. Prepare adjusted
trial balance
8. Journalise closing
entries

General journal

Continued Next Slide

COMPLETE
ACCOUNTING CYCLE
9. Post closing entries
to general ledger

General ledger
(temp a/cs
closed)
Trial balance
(post closing)

10. Prepare post

closing trial balance
11. Prepare financial
statements

Wor
ksh
eet

Financial
statements

12. Journalise
reversing entries

General journal

13. Post reversing

entries to general
ledger

General ledger

THE WORKSHEET
A useful One Stop Shop
Assembles all information needed
to adjust the accounts and
prepare financial statements
Aids in the preparation of interim
financial statements when
adjusting and closing entries are
not required
Contains information needed to
close off profit and loss accounts
6

PREPARATION OF THE
WORKSHEET
1. Enter ledger account titles and balances
in the account title and unadjusted trial
balance columns
2. Enter the adjustments in the adjustment
column (note: same principal as a
journal DR and CR appropriate
accounts)
3. Calculate adjusted trial balances
4. Extend adjusted balances to the
financial statements columns
7

PREPARATION OF THE
WORKSHEET
5. Difference between the two
income columns represents the
profit or loss for the period. This
balance is transferred to the
balance sheet column to balance
totals.
Financial statements can then be
prepared
8

CRESCENT REAL ESTATE

Worksheet for the year ended 30 June 2016

Unadjusted
Income

Adjusted

Balance
trial balance

statement
sheet
Account Title
Dr
Cash at bank
10500
Dr
Cr
Dr
Cr
Accounts receivable5400
Prepaid insurance960
Office supplies
540
Equipment
55000
Acc Dep-Equipment
10000
Land
50000
Accounts payable
4600
M Mooney-Capital
100000
Commission revenue
9600
Salary expense
1800

Cr

Adjustments
Dr

Cr

trial balance
Dr

Cr

.
Sub-Total
124200 124200
Net profit for the year
Total
9

Work sheet exercise

Using the worksheet provided in the lecture,
prepare the following adjusting entries.
1. The 24 month insurance policy was
purchased on the 31st March 2016.
2. The Equipment when purchased, on 1 July
2014,was expected to last 5 years after which
time it will be sold for $5,000. The firm uses
the straight line method for depreciation.
3. Commission earned but not recorded
amounts to $200.
10

Worksheet completion
Now complete the worksheet
across the columns.
Make sure you total the columns.

11

CRESCENT REAL ESTATE

Worksheet for the year ended 30 June 2016

Unadjusted
Income

Adjusted

Balance
trial balance

statement

Account
Title
Cash at bank

Adjustments

trial balance

sheet

Dr

Cr

Dr

Cr

Dr

Cr

10500
10500
10500
Dr
Cr
Dr
Cr
Accounts receivable5400
200
5600
5600
Prepaid insurance 960
120 840
840
Office supplies
540
540
540
Equipment
55000
55000
55000
Acc Dep-Equipment
10000
10000
20000
20000
Land
50000
50000
50000
Accounts payable
4600
4600
4600
M Mooney-Capital
100000
100000
100000
Commission revenue
9600
200
9800
9800
Salary expense
1800
1800
1800
Insurance expense
120
120
120
Depreciation expense
10000
10000
10000
.
Sub-Total
124200 124200 10320 10320 134400 134400 11920 9800
122480 124600
Net loss for the period
2120 2120
12

Extending the Accounting Cycle

1.
2.
3.
4.
5.
6.
7.

Analyse Transactions
Record in Journals (ie journalise)
Post to Ledger
Prepare Trial Balance
Prepare end-of-period adjustments
Prepare an Adjusted Trial Balance
Prepare Financial Statements

8. Close the Temporary Accounts

9. Post Closing Trial Balance
10.Reversing Entries
13

RECORDING
ADJUSTING ENTRIES
From worksheet formal adjusting entries
may be entered in general journal
Entries are dated the last day of the
accounting period
Data for determining the entitys
closing entries for the period are found
in income statement columns of
worksheet which contain temporary
income and expense accounts

CLOSING TEMPORARY
ACCOUNTS
Income and expense accounts must
be reduced to zero at the end of
each period in order to determine
the profit or loss for the period
These are called closing entries
Income and expense accounts then
begin the next accounting period
with a zero balance
The Profit or Loss Summary
account is used to summarise

The Closing Process

Accounts in the general ledger include both
permanent and temporary accounts.
All Asset accounts are permanent
All Liability accounts are permanent
Owners equity accounts such as Capital, Retained
Earnings and Reserves are permanent
but
Dividends and Drawings are temporary
Revenue accounts are temporary
Expense accounts are temporary

At the end of the accounting period all temporary

accounts must be closed (ie reset to zero)
16

THE CLOSING
PROCESS
1. Income accounts closed to P or L
summary
Debit income
Credit P or L Summary

2. Expense accounts closed to P or L

summary
Debit P or L summary
Credit expense

THE CLOSING
PROCESS
3. Profit or Loss Summary balances to
determine profit/loss then closed to
capital
Debit P or L summary (assuming a profit)
Credit capital account

4. Drawings closed to capital

Debit capital account
Credit drawings account

FLOWCHART of CLOSING PROCESS

(CLOSE INCOME ACCOUNT)
INCOME

28,500

12,000
7,500
9,000

SALARY EXP

1,500
1,800

3,300

RENT EXP

800

800

SUPPLIES EXP

350

350

(CLOSE EXPENSE
ACCOUNTS)

P&L
SUMMARY

4,450

28,500

24,050

24,050

(CLOSE P & L SUMMARY)

CAPITAL ACCOUNT

2,500

24,050

DRAWINGS

2,500

2,500

(CLOSE DRAWINGS ACCOUNT)

19

ACCOUNT BALANCES AFTER

THE CLOSING PROCESS

All income accounts have nil balances

All expense accounts have nil balances
The drawings account has a nil balance
The capital account has either been
increased by the profit, or
decreased by the loss
and decreased by the drawings
The Capital balance is now updated

Remember for closing

entries...
Create an account Profit & Loss
Summary
Close all revenue (income)
accounts against the P & L
Summary
Close all expense accounts against
the P & L Summary
Close P & L Summary against
Capital account
Close Drawings against capital
21

Now try this

exercise
ollowing account balances are taken from the annual financial statement

rt Lang Home Cleaning services with a reporting date of 30 June 201

are the closing entries:

S. Lang Capital
Service Revenue
Unearned
revenue
Salary expense
Accum
depreciation
Supplies expense

$91
200
181
000
2 700
31 000
70 000
2 800

Interest
expense
Accts
receivable
Salary payable

$4 400

Deprec.
Expense
Rent expense

20 400

S. Lang

80 000

52 000
1 700

11 800

22

THE POST-CLOSING
TRIAL BALANCE
Prepared to verify the equality of
debits and credits
i.e. ledger is in balance

Confirms that only permanent

accounts have balances
Starting point for next accounting
period

ACCRUAL ENTRIES IN
SUBSEQUENT PERIODS
Adjusting entries are made at the
end of the accounting period to
record accruals
Cash received or paid in
subsequent periods for accruals
must be analysed to correctly
apportion amount between the two
periods
e.g. payment for salaries

ACCRUAL ENTRIES IN
SUBSEQUENT PERIODS
Original adjusting Entry
General Journal
Jun 30 Salaries Expense

3 980

Salaries Payable

3 980

(Adjusting entry for salaries

payable)
Balance is cleared by

Subsequent Entry
payment
Jul 6 Salaries Payable
Salaries Expense
Cash at Bank

(Payment of salaries earned 23

June to 6 July)

3 980
3 420
7 400

REVERSING ENTRIES
Alternative to previous treatment
Dated the first day of the subsequent
accounting period
Exactly reverse certain adjusting entries
An accounting technique used to
simplify the recording of regular
transactions in the next period
They are optional in an accounting
system (however very useful)

REVERSING ENTRIES
Adjusting Entry
General Journal
Jun 30 Salaries Expense

3 980

Salaries Payable

3 980

(Adjusting entry for salaries

payable)

Reversing Entry
Jul 1 Salaries Payable

Salaries Expense
(Reversing entry for salaries
payable)

3 980
3 980

REVERSING ENTRIES
Subsequent Entry
Jul 6 Salaries Expense

7 400

Cash at Bank

7 400

(Payment of salaries earned 23

June to 6 July)
Salaries Expense
Adjusting Entry

3
980
0

Closing Entry

3
980

Subsequent Entry
Reversing Entry
3
7 400
980
3 420

Correct expense
recorded in prior
period, and closed
Correct expense
recorded in current
period, without
needing to know what
had been accrued
previously

REVERSING ENTRIES
Not required for all adjusting
entries
Used to simplify recording of
transactions in future periods
Only used where adjustment is
temporary
Accrued expenses
Accrued income
Prepayments originally recorded as
expenses