FABM1

Module 10:
Completing the Accounting Cycle
 What I Need to Know

This module was designed and written with you in mind. It is here to help you master
on how to complete the accounting cycle. The scope of this module permits it to be
used in many different learning situations. The language used recognizes the diverse
vocabulary level of students. The lessons are arranged to follow the standard
sequence of the course. But the order in which you read them can be changed to
correspond with the textbook you are now using.

The module has one lesson, namely:

• Lesson 1 – Completing the Accounting Cycle

After going through this module, you are expected to:

1. enumerate the steps to complete the accounting cycle;
2. define and prepare adjusted trial balance;
3. define and prepare financial statements;
4. define and prepare closing entries;
5. define and prepare post-closing trial balance; and
6. define and prepare reversing journal entries.

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 What I Know

Read and understand each item carefully. Choose the correct answer and write the
corresponding letter of your choice on a separate sheet of paper.
1. These are journal entries where revenues, expenses and drawing accounts
are closed to income summary account.
a. Adjusting entries c. Journal entries
b. Closing entries d. Reversing entries
2. This statement shows the company’s revenues and expenses for the period.
a. Balance Sheet c. Income Statement
b. Cash Flows Statement d. Statement of Changes in Equity
3. It refers to listing of all accounts after journalizing and posting the adjusting
entries.
a. Trial balance c. Post-closing trial balance
b. Adjusted trial balance d. None of these
4. This statement shows the balances of assets, liabilities and owner’s equity.
a. Balance Sheet c. Income Statement
b. Cash Flows Statement d. Statement of Changes in Equity
5. A tool shows the adjustments and position of all accounts in the financial
statements.
a. Ledger c. Trial balance
b. Work Sheet d. Chart of accounts
6. The Supplies account has a debit balance under the Trial balance column
and debit balance under the Adjustment column, the amount of Supplies
under the adjusted trial balance will
a. Increase c. Retain
b. Decrease d. Closed or zero out
7. This statement shows the ending capital balance of the business for the
period.
a. Balance Sheet c. Income Statement
b. Cash Flows Statement d. Statement of Changes in Equity
8. To close income summary account, a debit to income summary account and
credit to what account?
a. Asset c. Liability
b. Capital d. Revenue
9. It refers to the listing of real accounts after preparing closing entries
a. Trial balance c. Post-closing trial balance
b. Adjusted trial balance d. None of these
10. What do you call to the journal entries opposite of the adjusting entries?
a. Adjusting entries c. Journal entries
b. Closing entries d. Reversing entries
11. The company has initial investment of P100,000. During the period, the
owner invested additional capital of P50,000, earned with net income of
P125,000 and withdrawals of P20,000. How much is the ending capital of the
business?
a. P250,000 c. P260,000
b. P255,000 d. P265,000

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12. ABC Company shows the following balances: Service Revenue P180,000;
Interest Income P6,200; Insurance Expense P3,000; and Salaries Expense
P20,000. How much is the net income for the period?
a. P170,800 c. P160,000
b. P163,200 d. P 157,000

13. In Trial Balance, Rent Expense has a balance of P10,000. During the
year, a credit Rent Expense for P2,000 as adjusting entry was made. How
much should be the Rent Expense balance after adjustment?
a. P12,000 c. P8,000
b. P10,000 d. P2,000

14. It is the recording phase of the accounting cycle.

a. Preparing financial statements c. Journalizing
b. Preparing reversing entries d. Posting

15. The last step of the accounting cycle is

a. Preparing trial balance c. Preparing reversing entries
b. Preparing adjusted trial balance d. Preparing closing entries

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 Lesson Completing the Accounting
1 Cycle

This lesson is prepared to continue the remaining five steps of the accounting cycle.
It gives you the skills on how to prepare various statements required in making
economic decisions.

What’s In

Notes to the Teacher

The teacher should emphasize to the learners the essential of
thorough familiarization and understanding on this lesson
because the skills on this topic will help the learners to keep
them going through the whole cycle of accounting.

Completing the accounting cycle involves the summarizing and communicating

phase of accounting. It is the most awaited phase of the cycle because it
summarizes the performance of the business operation and the financial conditions
through the financial statement

What’s New

Arrange the following steps in accounting cycle in order by numbering them 1 to

10.

_____ A. Preparing post-closing trial balance

_____ B. Analyzing business transactions
_____ C. Preparing financial statements
_____ D. Journalizing and posting adjusting entries
_____ E. Preparing reversing entries

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_____ F. Journalizing business transaction
_____ G. Preparing adjusted trial balance
_____ H. Posting journal entries to the ledger
_____ I. Preparing closing entries
_____ J. Preparing the trial balance

What is It

You are now in the sixth to tenth steps of accounting cycle. The five steps to make
the accounting cycle complete are: Preparing adjusted trial balance, preparing
financial statements, preparing closing entries, preparing post-closing trial balance
and Preparing reversing journal entries.

Let’s discuss and illustrate an example for each step.

Step 6: Preparing Adjusted Trial Balance

What is an adjusted trial balance? An adjusted trial balance is a listing of
accounts after adding or subtracting the adjustments made for the period.

Before adjusted trial balance is made, the adjustments made for the period must be
recorded in the adjustment column of the worksheet.

To illustrate, assume the following information:

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 ABM ACCOUNTING FIRM
Trial Balance
December 31, 2020
Adjusting entries made during the period:
Account Title Debit Credit
Cash P259,000 a. Supplies Expense 5,500
Accounts Receivables 90,000 Supplies 5,500
Supplies 8,000
Equipment 55,000 b. Prepaid Rent 10,000
Accounts Payable P 65,000 Rent Expense 10,000
Ms. Co, Capital 300,000
Ms. Co, Drawings 10,000
Professional Fees c. Depreciation Expense 3,750
118,000 Accumulated Depreciation-
Rent Expense 40,000 Equipment 3,750
Salaries Expense 16,000
Taxes and Licenses 2,000
Utilities Expense 3,000 ______
483,000 P483,000

We will transfer this information to a worksheet. A worksheet is a tool used to

show the movements of accounts after adjustments and the position of each
accounts in the financial statements.

How to transfer the above information to the worksheet? Here’s how:

1. Transfer the accounts of the Trial Balance and enter their balances to the first
two columns of the Work Sheet.
2. Post the adjusting entries to the third and fourth column or the Adjustments
column.
3. Prepare the adjusted trial balance by forwarding the balances of each account on
the fifth and sixth column or Adjusted trial balance column. Add the amount of
each account under trial balance column and the amount under adjustment
column if they are both debit or both credits, and enter their sum under adjusted
trial balance. Subtract the two if they are not the same debit or the same credit and
enter their difference under the adjusted trial balance column on the side of the
greater value .

1 ABM ACCOUNTING FIRM

1 Work Sheet 2
December 31, 2020
Trial Balance Adjustments Adjusted Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
Cash 259,000 3 259,000
Accounts Receivable 90,000 90,000
Supplies 8,000 a. 5,500 2,500
Equipment 55,000 55,000
Accounts Payable 65,000 Subtract the two and 65,000
Ms. Co, Capital 300,000 enter their difference on 300,000
debit side since debit is
Ms. Co, Drawings 10,000 greater than credit.
10,000
Professional Fees 118,000 118,000
Rent Expense 40,000 b. 10,000 30,000
Salaries Expense 16,000 16,000
Taxes and Licenses 2,000 2,000
Utilities Expense 3,000 _______ 3,000
483,000 483,000
a.Supplies Expense a. 5,500 5,500
b. Prepaid Rent b. 10,000 10,000
c.Depreciation Expense c. 3,750 3,750
c.Accumulated Dep.-Equipment ________ c. 3,750 _______ 3,750
P 19,250 P 19,250 P486,750 P486,750
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Preparing adjusted trial balance is just like preparing a trial balance. From the
worksheet, we can prepare a more presentable adjusted trial balance like the
following:

ABM ACCOUNTING FIRM

Trial Balance
December 31, 2020

Account Title Debit Credit

Cash P259,000
Accounts Receivables 90,000
Prepaid Rent 10,000
Supplies 2,500
Equipment 55,000
Accumulated Depreciation-Equipment P 3,750
Accounts Payable 65,000
Ms. Co, Capital
300,000
Ms. Co, Drawings 10,000
Professional Fees 118,000
Rent Expense 30,000
Salaries Expense 16,000
Supplies Expense 5,500
Depreciation Expense 3,750
Taxes and Licenses 2,000
Utilities Expense 3,000 ________
P 486,750 P 486,750

Step 7: Preparing the Financial Statements

Now let’s go to the next step, preparing the financial statements. What are financial
statements? What are the different types of financial statements?

Financial statements are statement that shows the information about the assets,
liabilities, capital, revenue and expenses of the business. These statements may
help the users to make economic decision.

The following are the five financial statements:

1. Statement of Financial Position or Balance Sheet
2. Statement of Comprehensive Income or Income Statement
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes to financial statements

In this module, we will just prepare the first three statements.

A statement of comprehensive income or income statement is a statement

shows the company’s revenues and expenses for the period.

We can illustrate the income statement directly from the adjusted trial balance and
the income statement itself. The income statement directly from the adjusted trial

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balance is done by transferring the amount of revenues and expenses to seventh
and eighth column of the worksheet.

Figure 1
ABM ACCOUNTING FIRM
Work Sheet
December 31, 2020
Trial Balance Adjustments Adjusted Trial Balance Income Statement
Account Title Debit Credit Debit Credit Debit Credit Debit Credit
Cash 259,000 259,000
Accounts Receivable 90,000 90,000
Supplies 8,000 a. 5,500 2,500
Equipment 55,000 55,000
Accounts Payable 65,000 65,000
Ms. Co, Capital 300,000 300,000
Ms. Co, Drawings 10,000 10,000
Professional Fees 118,000 118,000 118,000
Rent Expense 40,000 b. 10,000 30,000 30,000
Salaries Expense 16,000 16,000 16,000
Taxes and Licenses 2,000 2,000 2,000
Utilities Expense 3,000 _______ 3,000 3,000
483,000 483,000
A. Supplies Expense a. 5,500 5,500 5,500
b. Prepaid Rent b. 10,000 10,000
depreciation Expense c. 3,750 3,750 3,750
c .Accum. Dep - Equipment ________ c. 3,750 _______ 3,750 ______ ______
Totals P 19,250 P 19,250 P486,750 P486,750 P60,250 P118,000
Net Income 57,750 _______
Totals P118,000 P118,000

ABM ACCOUNTING FIRM

Income Statement
For the year ended December 31, 2020 ABM ACCOUNTING FIRM
Statement of Changes in Equity
Revenue: For the year ended December 31, 2020
Professional Fees P 118,000
Less: Operating Expenses Ms. Co, Capital, Jan 1 P300,000
Rent Expense P 30,000 Add: Net Income 57,750
Salaries Expense 16,000 Total P357,750
Supplies Expense 5,500 Less: Ms. Co, Drawing ( 10,000)
Depreciation Expense 3,750 Ms. Co, Capital, Dec 31 P347,750
Utilities Expense 3,000
Taxes & Licenses Expense 2,000 (60,250)
Net Income P 57,750

The Statement of Changes in Equity is a reconciliation of the beginning and

ending balances in a company’s equity during the accounting period. The net
income and the additional capital should be added to the initial capital while
withdrawals and net loss are deducted get the ending capital.

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The Statement of Financial Position or Balance Sheet is a statement that shows
the balances of the assets, liabilities and owner’s equity accounts. We can also
illustrate the balance sheet using the work sheet.

There are two types of balance sheet, the account form and report form.

Report Form
ABM ACCOUNTING FIRM
Statement of Financial Position
As of December 31, 2020 Notes to Financial
Statement – are additional
ASSETS Note computation of account
Current Assets balance in the financial
Cash P 259,000 statements.
Accounts Receivable 90,000
Prepaid Rent 10,000
Supplies 2,500
Total Current Assets P 361,500 Note 1: Equipment
Non-current assets
Equipment (1) 51,250 Equipment P55,000
Total Assets P 412,750 Less:Accumulated
Depreciation-Equip
LIABILITIES AND OWNER’S EQUITY Ment 3,750
Current Liabilities Book Value P 51,250
Accounts Payable P 65,000
Owner’s Equity
Ms. Co, Capital 347,750
Total Liabilities and Owner’s Equity P 412,750

Account Form ABM ACCOUNTING FIRM

Statement of Financial Position
As of December 31, 2020

ASSETS Note LIABILITIES AND OWNER’S

EQUITY
Current Assets Current Liabilities
Cash P259,000 Accounts Payable P 65,000
Accounts Receivable 90,000
Prepaid Rent 10,000 Owner’s Equity
Supplies 2,500 Ms. Co, Capital 347,750
Total Current Assets P361,500
Non-current assets
Equipment (1) 51,250 Total Liabilities
Total Assets P 412,750 and Owner’s Equity P 412,750

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 trial balance)
ABM ACCOUNTING FIRM
Work Sheet
December 31, 2020
Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 259,000 259,000 259,000
Accounts Receivable 90,000 90,000 90,000
Supplies 8,000 a. 5,500 2,500 2,500
Equipment 55,000 55,000 55,000
Accounts Payable 65,000 65,000 65,000
Ms. Co, Capital 300,000 300,000 300,000

Step 8: Preparing Closing Entries

Ms. Co, Drawings 10,000 10,000 10,000
118,000
Figure 1

Professional Fees 118,000 118,000

Rent Expense 40,000 b.10,000 30000 30,000

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Salaries Expense 16,000 16,000 16,000
Taxes and Licenses 2,000 2,000 2,000
Utilities Expense 3,000 _______ 3,000 3,000
483,000 483,000
a.Supplies Expense a. 5,500 5,500 5,500
b. Prepaid Rent b. 10,000 10,000 10,000
c.Depreciation Expense c. 3,750 3,750 3,750
c.Accum. Dep - Equipment ________ c. 3,750 _______ 3,750 ______ ______ 3,750
Totals P 19,250 P 19,250 P486,750 P486,750 P60,250 P118,000 426,500 368,750
Net Income 57,750 _______ _______ 57,750
Totals P118,000 P118,000 P426,500 P426,500

Summary account and closed Income Summary to Capital account.

1. Close the revenue account and transfer to Income Summary account.

A closing entry are journal entries where nominal accounts (revenues and

The following are the four steps in preparing closing entries: (Refer to the adjusted
expenses) and drawing account are closed and transferred their amount in Income
 GENERAL JOURNAL Page: 35
Particulars
Date (Account Titles and Explanation) PR Debit Credit
Dec 31 Professional Fees 118,000
Income Summary 118,000
To close revenue account.

2. Close all expense account and debit to Income Summary account.

GENERAL JOURNAL Page: 35
Particulars
Date (Account Titles and Explanation) PR Debit Credit
Dec 31 Income Summary 60,250
Rent Expense 30,000
Salaries Expense 16,000
Taxes and Licenses Expense 2,000
Utilities Expense 3,000
Supplies Expense 5,500
Depreciation Expense 3,750
To close the expense account

3. Close the Income Summary account and credit the capital account.
GENERAL JOURNAL Page: 35
Particulars
Date (Account Titles and Explanation) PR Debit Credit
Dec 31 Income Summary 57,750
Ms. Co, Capital 57,750
To close income summary account.

Note: To compute for the Income Summary balance, just get the difference between
P118,000 and P40,250 and you will get credit Income Summary for 77,750(Since
credit amount is greater than debit amount). To close it, you need to debit Income
Summary and credit Ms. Co, Capital.

4. Close the Drawing account and credit the capital account.

GENERAL JOURNAL Page: 35
Particulars
Date (Account Titles and Explanation) PR Debit Credit
Dec 31 Ms. Co, Capital 10,000
Ms. Co, Drawings 10,000
To close drawing account

Step 9: Preparing Post-Closing Trial Balance

A post-closing trial balance is the listing of real accounts after preparing closing
entries.
Post-closing trial balance is prepared by transferring the balances of assets,
liabilities and capital to the trial balance.

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 ABM ACCOUNTING FIRM
Post-Closing Trial Balance
December 31, 2020 To find capital account
balance:
Account Title Debit Credit
Ms. Co, Capital
Cash P 259,000
12/31 10,000 Beg. 300,000
Accounts Receivable 90,000
12/31 57,750
Prepaid Rent 10,000
__________________________
Supplies 2,500
10,000 357,750
Equipment 55,000
Accumulated Depreciation-Equipment P 3,750 ________________________
Accounts Payable 65,000 Bal. 347,750
Ms. Co, Capital _________ 347,750
Totals P416,500 P416,500

Step 10: Prepare Reversing Journal Entries

A reversing journal entry are journal entries that are opposite of the adjusting
entries made for prepayment under the expense method, precollections under the
revenue method, accrued expenses and accrued income. They are made at the
beginning of the next accounting period.

To illustrate, let’s go back to the adjusting entries of ABM ACCOUNTING FIRM and
we will find out which of the adjusting entries need to prepare reversing entry.

Adjusting entries made during the

period:

a. Supplies Expense 5,500 Among the adjusting entries of ABM

Supplies 5,500 ACCOUNTING FIRM, only the letter
needs to reverse because the company
b. Prepaid Rent 10,000 used expense method in prepayments.
Rent Expense 10,000
Reversing Entry:

c. Depreciation Expense 3,750 Rent Expense 10,000

Accumulated Depreciation- Prepaid Rent 10,000
Equipment 3,750

As a summary, whole accounting cycle has the following steps:

1. Analyzing business transaction

2. Recording business transactions to the journal
3. Posting the journal entries to the ledger
4. Preparing the trial balance
5. Journalizing and posting the adjusting entries
6. Preparing the adjusted trial balance
7. Preparing the financial statements
8. Journalizing and posting closing entries

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 9. Preparing post-closing trial balance
10.Preparing reversing journal entries

What’s More

Activity 10-1 Preparing Adjusted Trial Balance

The following information are taken from Rapid Test Clinic Trial Balance and
Adjusting entries:
Rapid Test Clinic
Trial Balance
June 30, 2020

Account Title Debit Credit

Cash P 250,000
Accounts Receivable 30,000
Notes Receivable 10,000
Medical Equipment 132,000
Furniture and Fixtures 45,000
Accumulated Depreciation -F&F P 1,700
Accounts Payable 85,000
Notes Payable 25,000
Mr. Koeby, Capital 350,000
Mr. Koeby, Drawings 20,000
Professional Fees 210,000
Medical Supplies Expense 145,000
Rent Expense 10,000
Salaries Expense 24,000
Depreciation Expense 1,700
Miscellaneous Expense 4,000 __________
P671,700 P 671,700

Adjusting entries during the period:

a. Professional Fees 60,000
Unearned Revenue 60,000

b. Medical Supplies 95,000

Supplies Expense 95,000

c. Depreciation Expense 5,200

Accumulated Depreciation
Medical Equipment 5,200

d. Accrued Interest Receivable 340

Interest Income 340
e. Interest Expense 620
Accrued Interest Payable 620

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 Required: Prepare adjusted trial balance in good form

What I Have Learned

Activity 10-2. You Made Me Complete

Complete the statement to make it correct. Write the word or words on the space
provided. Use another sheet of paper for your answer.
1. A ___________ is a tool used to show the movements of accounts after
adjustments and the position of each account in the financial statements.
2. Transfer the accounts titles of the trial balance and enter their balances on
the __________ of the work sheet.
3. _____ the amount of each account, under the trial balance column and the
amount under adjustment column if they are both debit or both credit.
4. A __________ is a statement shows the company’s revenues and expenses
5. __________ is a reconciliation of the beginning and ending balances in capital.
6. In closing entries, debit the revenue account and credit _________ account.
7. To close the expense, debit the income summary account and credit ________
account.
8. The first step in the accounting cycle is ________________________________.
9. The fourth step is ____________________________________.
10. The tenth and last step in the accounting cycle is __________________________.

What I Can Do

Activity 10-3

Refer to Activity 10-1

Required: 1. Prepare the income statement

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 Assessment

Activity 10-4

Refer to Activity 10-1 and Activity 10-3

Required:

1. Prepare statement of changes in owner’s equity

2. Prepare balance sheet (report form) and notes to financial
statement
3. Prepare closing entries
4. Prepare post-closing trial balance
5. Prepare reversing entries

Additional Activities

Activity 10-5.

Provide the statement of changes in owner’s equity for the following:

A. The DIY Co initial investment is P180,000. During the period the owner
made an additional investment of P70,000 and withdrew P50,000 for
personal use. Net loss during the year is P45,000. Prepare the statement
of changes in owner’s equity for year ended December 31, 2020

B. FIY Co started its business with P50,000 capital. After two months the
owner invests another P30,000 and withdrew P5,000. Net income for the
year amounted to P27,000. Prepare the statement of changes in equity
for quarter ended June 30, 2020.

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