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Closing Entries & Post-Closing Trial Balance

This document provides a trial balance from Teresita Nacion Publisher as of December 31, 2018 and instructions to prepare closing entries, a post-closing trial balance, and reversing entries. The trial balance lists account balances for assets, liabilities, equity, revenues, and expenses. The instructions are to prepare closing entries to clear temporary accounts to retained earnings or capital, prepare a post-closing trial balance, and prepare reversing entries to undo the adjusting entries made at year-end.

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Eunice Villacacan
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3K views1 page

Closing Entries & Post-Closing Trial Balance

This document provides a trial balance from Teresita Nacion Publisher as of December 31, 2018 and instructions to prepare closing entries, a post-closing trial balance, and reversing entries. The trial balance lists account balances for assets, liabilities, equity, revenues, and expenses. The instructions are to prepare closing entries to clear temporary accounts to retained earnings or capital, prepare a post-closing trial balance, and prepare reversing entries to undo the adjusting entries made at year-end.

Uploaded by

Eunice Villacacan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Reversing Entries
  • Closing Entries & Trial Balance

CLOSING ENTRIES (STEP 7) & POST CLOSING TRIAL BALANCE (STEP 8).

Listed below are the accounts taken from the December 31, 2018 adjusted trial balance of Teresita Nacion Publisher:

Accounts Receivable 260,000 Interest Payable 40,000


Supplies Expense 710,000 Cash 160,000
Salaries Expense 2,270,000 Repairs Expense 10,000
Printing revenues 8,130,000 Accounts Payable 190,000
Prepaid insurance 320,000 Telephone expense 20,000
Depreciation expense 250,000 Utilities Expense 80,000
Supplies 160,000 Unearned Printing Revenues 210,000
Salaries Payable 310,000 Interest Expense 300,000
Printing Equipment 5,520,000 Nacion, Capital 340,000
Prepaid Advertising 70,000 Notes Payable 2,500,000
Nacion, withdrawals 1,500,000 Miscellaneous Expense 90,000

Required:
1. Prepare the closing entries.
2. Prepare post-closing trial balance

REVERSING ENTRIES (STEP 9)


Some of the adjusting entries of the Warlito Blanche Acctg Services on December 31, 2018 is presented below:

2018
Dec. 31 Prepaid Insurance 25,000
Insurance Expense 25,000
Unexpired insurance at year-end

Interest Receivable 17,000


Interest Income 17,000
Accrued interest at year-end

Office Supplies Expense 50,000


Office Supplies 50,000
Office supplies used during the period

Depreciation Expense 125,000


Accumulated Depreciation 125,000
Depreciation for the year

Salaries Expense 35,000


Salaries Payable 35,000
Accrued Salaries at year-end

Accounting Revenues 80,000


Unearned Accounting Revenues 80,000
Unearned acctg revenues at year-end

Unearned Bookkeeping Revenues 15,000


Bookkeeping Revenues 15,000
Bookkeeping revenues earned at year-end

1. Prepare the reversing entries for the following adjusting entries above.

Common questions

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Accrued revenues impact the closing process by requiring recognition of revenue earned but not yet received in cash, impacting both income statements and balance sheets. For Warlito Blanche Acctg Services, accruing 'Interest Income' implies an increase in net income and balance sheet assets due to uncollected revenue. This necessitates closing to 'Interest Income' in the equity section, ensuring that income reflects all earned revenues .

Adjustments for prepaid and unearned accounts impact cash flow statements by reflecting timing differences in cash versus accrual accounting. For Teresita Nacion Publisher, reducing 'Prepaid Insurance' aligns expenses with actual periods of usage, which could mean prior cash outflows not aligned with reported income statement expenses. Adjustments to 'Unearned Revenues' involve cash received but not earned, affecting liabilities rather than directly influencing cash flow metrics from operating activities .

Accurate expense recognition is crucial for depicting true financial performance and maintaining financial integrity. For Teresita Nacion Publisher, recognizing 'Supplies Expense' reflects resource consumption, impacting net income and indicating cost management efficiency. Correctly accounting for 'Miscellaneous Expense' ensures that all outflows affecting income statements and cash positions are accounted for, providing stakeholders with a transparent view of financial health .

Adjusting 'Interest Payable' ensures that all financial obligations are accurately reported, reflecting comprehensive financial conditions when closing books for Teresita Nacion Publisher. Recognizing 'Interest Payable' signifies accrued liabilities, impacting balance sheets by reflecting true obligations and avoiding underrepresentation of expenses within the income statement, thus enhancing financial accuracy and ensuring transparent financial communication .

To prepare a post-closing trial balance, list only those accounts that remain open after the closing entries. Start by closing temporary accounts like revenues, expenses, and withdrawals to capital. Then, list accounts such as 'Accounts Receivable,' 'Cash,' 'Accounts Payable,' 'Unearned Printing Revenues,' and 'Nacion, Capital' with their respective balances, ensuring total debits equal total credits .

Reversing entries simplify future accounting by negating certain adjusting entries made at the end of an accounting period, easing transaction recording in the new period. For Warlito Blanche Acctg Services, reversing the 'Salaries Payable' entry allows salaries paid in the following period to be recorded as if no prior adjusting entry was made, eliminating the need to adjust for accrued salaries, thus preventing double-counting. Similarly, recording a reverse entry for 'Unearned Accounting Revenues' ensures that revenue recognition for payments received will straightforwardly reduce the liability without adjusting prior period accruals .

Adjusting prepaid accounts affects financial statements by aligning expenses and revenues with the accounting period they pertain to. For Warlito Blanche Acctg Services, adjusting 'Prepaid Insurance' to 'Insurance Expense' increases current period expenses, reducing net income, and represents the actual insurance expense for the period. This adjustment affects the balance sheet by decreasing current assets ('Prepaid Insurance').

Depreciation adjustments, like those for Warlito Blanche Acctg Services, reduce taxable income by recognizing asset usage over time, impacting both the income statement and balance sheet. An entry of 'Depreciation Expense' lowers net income, which may adversely affect short-term profitability but leads to tax savings. It concurrently increases 'Accumulated Depreciation' on the balance sheet, representing a reduction in asset book value, influencing long-term financial health by decreasing total asset value .

Differentiating between unearned and earned revenues poses challenges of proper timing and recognition, crucial for accurate financial reporting. Mistakes in timing can misstate financial performance metrics. For Warlito Blanche Acctg Services, recording unearned bookkeeping revenues reflects liabilities until services are rendered, ensuring compliance with accrual principles. Misclassification could lead to premature revenue recognition, misstating earnings and liabilities .

Closing entries are used to transfer the balances of temporary accounts to the owner's equity account, impacting Teresita Nacion Publisher by adjusting the Capital account. For instance, closing revenue accounts like 'Printing Revenues' and expense accounts such as 'Salaries Expense' to 'Nacion's Capital' will adjust the equity to reflect the profit or loss for the period, increasing or decreasing owner's equity accordingly .

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