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