MODULE 5

COMPLETION OF THE ACCOUNTING PROCESS

Intended Learning Outcomes

After the end of this module, you should be able to:

1. understand the use of worksheet;
2. prepare financial statements from the worksheet;
3. prepare adjusting entries and closing entries;
4. prepare post-closing trial balance; and
5. understand the use of reversing entries.

THE ACCOUNTING CYCLE

The accounting cycle is a series of steps accountants perform during an accounting period relating to
analyzing, recording, classifying, summarizing and reporting useful financial information. Its purpose is to
generate the financial statements.
The steps in accounting cycle are:
1. The transactions are analyzed by examining source documents.
2. The transactions are journalized.
3. The journal entries are posted to the ledger.
4. A trial balance is prepared.
5. The data needed to adjust the accounts are assembled.
6. A worksheet is prepared.
7. The financial statements are prepared.
8. The adjusting entries are journalized and posted to the ledger.
9. The closing entries are journalized and posted to the ledger.
10. A post-closing trial balance is prepared.
11. The reversing entries are journalized and posted to the ledger.
The first three steps comprise the recording phase of accounting. The summarizing phase starts with the
preparation of the trial balance up to the post-closing trial balance. The last step is performed at the beginning
of the new accounting period.

WORKSHEET
The worksheet is a columnar sheet of paper used to summarize information needed to make adjusting
and closing entries and to prepare the financial statements. A worksheet is only a tool used by accountants and
is not part of the formal accounting records. A worksheet is used each time financial statements are prepared
either monthly, quarterly, or at the end of accounting year.
This chapter illustrates ten-column worksheet that includes sets of columns for trial balance,
(unadjusted), adjusted trial balance, income statements, and the balance sheets. Each set of columns has a
debit and a credit column.
The steps in the preparation of the work sheet are as follows:
1. Enter the titles and balances of ledger accounts in the Trial Balance columns
2. Enter the adjustments in the Adjustments column. Identify each adjustment with letters
3. Enter adjusted account balance in the Adjusted Trial Balance columns.
4. Extend adjusted balances of revenue and expense accounts from the Adjusted Trial Balance columns
to the Income Statement columns
5. Extend adjusted balances of assets, liabilities and owner’s equity accounts from the Adjusted Trial
Balance columns to the Balance sheet columns
6. Total the income statement columns and the balance sheet columns. Enter the net income or net loss
as a balancing figure in both pairs of columns and again compute the column totals.

THE TRIAL BALANCE COLUMNS

Copy the trial balance prepared after posting in the trial balance column of the work sheet. Enter the
tittle of each ledger account on the description column of the work sheet. Usually, only those accounts with
balances as of the end of the accounting period are listed. Alternatively, all account tittles in the chart of
accounts even those with zero balances are listed.
To illustrate the preparation of a worksheet, assume the following trial balance for Cruz Service
Center.

Module 5 ABM 1203 - Fundamentals of Accountancy, Business and Management 1 1- NAB

 CRUZ SERVICE CENTER
Trial Balance
January 31, 20X1
Debit Credit
Cash 44,850
Accounts Receivable 9,000
Supplies 7,500
Prepaid Insurance 7,200
Equipment 25,600
Accounts Payable 19,900
Notes Payable 20,000
J. dela Cruz, Capital 50,000
J. dela Cruz, Drawing 3,000
Service Revenue 20,500
Salaries Expense 4,800
Rent Expense 3,000
Utilities Expense 2,100
Taxes Expense 2,400
Miscellaneous Expense 950
Total 110,400 110,400

THE ADJUSTMENT COLUMNS

Adjusting entries bring the accounts up-to-date prior to preparing the financial statements. Enter the
adjustments in the Adjustments columns of the work sheet. If the account is not included in the original trial
balance, add the account title below the totals of the trial balance. The amounts are written on the debit and
credit sides of the adjustment columns placing a key letter to the left of each amount. This key letter facilitates
the actual journalizing of the adjusting entries later. For example, we identify the adjustment debiting Supplies
Expense and crediting Supplies by the letter (a).
After entering all adjusting entries in the Adjustment column, total the two columns. The totals of the
two columns should be equal if all debits and credits are entered properly.
The adjustments for Cruz Service Center are as follows:
(a) Supplies on hand as of January 31, P5,120.
(b) Insurance expired during the month, P600.
(c) Taxes applicable to future periods, P2,200.
(d) Depreciation of equipment for the month, P175.
(e) Unearned service revenue, P1,950.
(f) Unbilled service revenue performed in January, P3,360.
(g) Accrued salaries at the end of the month, P270.

THE ADJUSTED TRIAL BALANCE COLUMNS

An adjusted trial balance is the original trial balance plus or minus the adjustments. If the item
appears as a debit in the Trial Balance, and there is a credit in the Adjustment column, subtract the two
amounts and extend the difference on the Adjusted Trial Balance column on the side of the larger amount. If
the item appears as a debit in the Trial Balance, and the Adjustment is also a debit amount, add and extend the
total on the debit side of the Adjusted Trial Balance. Add also account with credit balance in the trial balance
and credit amount in the adjustments.
Extend all accounts having balances to the Adjusted Trial Balance columns. Note that some account
balances remain the same because no adjustments have affected them. Simply extend these account balances
to the Adjusted Trial Balance columns in the work sheet.
Add the Adjusted Trial Balance debit and credit columns, and the two totals must be equal before
taking the next step in completing the work sheet. If the Trial Balance columns do not, a math error or an error
in extension is the more likely causes. The Adjusted Trial Balance columns are not essential, but they make
the next step of sorting the amounts to the Income Statement and Balance Sheet columns much easier.

THE INCOME STATEMENT COLUMNS

Extend all revenue and expense account balances from the Adjusted Trial Balance columns to the
Income Statement columns. Since revenues carry credit balances, extend them to the credit column; extend the
expenses to the debit column. Then subtotal each column. If the total revenues exceed the total expenses, the
difference is the net income that is added to the debit column in order to bring the two columns into
agreement.

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THE BALANCE SHEET COLUMNS
Extend the assets, liabilities, and owner's equity accounts from the Adjusted Trial Balance columns to
the Balance Sheet columns. Debit assets and credit the liabilities and owner's equity amounts. Note that the
beginning rather than the ending balance of the owner's capital is carried into the credit column because the
closing entries are not yet prepared.
Note also that the net income that was determined in the Income Statement column appears again in
the Balance Sheet columns. The net income amount is added to the column with the smaller amount. Hence it
is added to the debit total in the Income Statement columns, and to the credit total in the Balance Sheet
columns. With the inclusion of the net income amount, the Balance Sheet columns are now equal.
If the Balance Sheet and Income Statement columns do not agree on the first attempt, work backward
through the process used in preparing the worksheet. Specifically, the following steps should be taken until
the error is discovered.

1. Re-add the two Balance Sheet columns to see if an error is made in addition. If the two column totals
do not agree, check to see if some balance sheet items are extended incorrectly from the Adjusted
Trial Balance columns.
2. Re-add the Income Statement columns and determine if the correct amount of net income or net loss
for the period is entered in the appropriate columns in the Income Statement and Balance Sheet
columns.
3. Re-add the Adjusted Trial Balance columns. If the totals agree, check to see if each item is transferred
to the correct Income Statement or Balance Sheet columns. If the totals do not agree, make sure that
each adjustment is properly added to or subtracted from the related amount in the Trial Balance
column.
4. Re-add the Adjustments columns.
5. Re-add the Trial Balance columns. If the totals do not agree, review the ledger accounts to find the
error.

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Module 5 ABM 1203 - Fundamentals of Accountancy, Business and Management 1 4- NAB
PREPARING THE FINANCIAL STATEMENTS FROM THE WORK SHEET
After completing the work sheet, all information needed to prepare the income statement, the
statement of owner's equity, the balance sheet and the statement of cash flows are readily available.

THE INCOME STATEMENT

The information needed to prepare the income statement can be taken from the Income Statement
columns in the work sheet. The income statement for Cruz Service Center is illustrated as follows:

CRUZ SERVICE CENTER

Income Statement
For the Month Ended January 31, 20X1

Service Revenue P 21,910

Less: Expenses
Salaries expense P 5,070
Rent expense 3,000
Supplies expense 2,380
Utilities expense 2,100
Insurance expense 600
Taxes expense 200
Depreciation expense - Equipment 175
Miscellaneous expense 950
Total Expenses 14,475
Net Income P 7,435

THE CAPITAL STATEMENT

The Capital Statement (also called statement of owner's equity) is a financial statement that
summarizes the transactions affecting the owner's capital account balance. The information needed to prepare
financial statement is taken from the Balance Sheet columns in the work sheet. This statement is prepared by
showing the beginning capital account balance, adding net income (or deducting net loss), and then
subtracting the owner's withdrawals. The result is the ending capital balance that is forwarded to the balance
sheet.
CRUZ SERVICE CENTER
Capital Statement
For the Month Ended January 31, 20X1

Capital, January 1, 20X1 P 50,000

Net income for the month 7,435
Withdrawal (3,000)
Capital, January 31, 20X1 P 54,435

The capital statement indicates how net income, shown on the income statement relates to the amount
of owner's capital, shown on the balance sheet under owner's equity.

THE CLASSIFIED BALANCE SHEET

The Statement of Financial Position (SFP) or Balance Sheet provides the information about the entity's
resources (assets), claims against those resources (liabilities) and the remaining claim, accruing to the owner
(owner's equity) as of the end of a period. This statement is useful in assessing present and future cash flows,
liquidity and long term solvency.
➢ Liquidity refers to the period of time before an asset is converted to cash or until a liability is paid.
➢ Long-term solvency is the riskiness of a company with regard to the amount of liabilities in its
capital structure. Solvency provides information about the company's financial flexibility, that is the
ability of a company to alter cash flows in order to take advantage of unexpected investment
opportunities and needs.

Statement of Financial Position may be prepared in any of the two forms: (1) account form and (2) report
form.

A. Account form - The balance sheet that is presented in account form presents the accounts as in a T-
account, with the assets shown on the left side, and the liabilities and owner's equity on the right side.

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 CRUZ SERVICE CENTER
Balance Sheet
January 31, 20X1

Assets Liabilities and Capital

Cash P 44,850 Accounts Payable P 19,900
Accounts Receivable 12,360 Notes Payable 20,000
Supplies 5,120 Salaries Payable 270
Prepaid Insurance 6,600 Unearned Service Revenue 1,950
Prepaid Taxes 2,200 Total Liabilities P 42,120
Equipment 25,600
Accumulated
Depreciation ( 175) J. dela Cruz, Capital 54,435
Total Assets P 96,555 Total Liabilities and Capital P 96,555

B. Report Form - The balance sheet that is presented in report form presents the assets on the top section and
the liabilities and owner's equity at the bottom section of the report.

CRUZ SERVICE CENTER

Balance Sheet
January 31, 20X1

Assets
Cash P44,850
Accounts Receivable 12,360
Supplies 5,120
Prepaid Insurance 6,600
Prepaid Taxes 2,200
Equipment 25,600
Accumulated Depreciation ( 175)
Total Assets P96,555

Liabilities and Capital

Accounts Payable P19,900
Notes Payable 20,000
Salaries Payable 270
Unearned Service Revenue 1,950
Total Liabilities P42,120

J. dela Cruz, Capital 54,435

Total Liabilities and Capital P96,555

JOURNALIZING AND POSTING THE ADJUSTING ENTRIES

The adjusting entries, first recorded in the work sheet, are also recorded in the journal and posted in the
ledger. This is to prove that balances of the accounts in the ledger conform to the balances shown in the
financial statements. The adjusting entries are recorded on the next available space in the journal. These
entries may or may not be explained. If no explanation is required, “Adjusting Entries” are written at the
center of the description column above the first entry. These entries are also posted to the general ledger in the
usual manner, except that the word “Adjusting" is written on the items column to differentiate it from other
posted entries.

The preparation of the work sheet does not eliminate the need to prepare and post adjusting entries
because the work sheet is only an accounting tool and is not part of the formal accounting records. The
adjusting entries of Cruz Service Center are journalized as follows:

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 General Journal Page 3
Post
Date Description Ref. Debit Credit
Adjusting Entries
20X1 31 Supplies Expense 55 2,380-
Jan.
Supplies 13 2,380-
To record used supplies.

31 Insurance Expense 56 600-

Prepaid Insurance 14 600-
To record expired insurance.

31 Prepaid Taxes 15 2,200-

Taxes Expense 53 2,200-
To record unused taxes.

31 Depreciation Expense – Equipment 57 175-

Accumulated Depreciation – Equipment 17 175-
To record depreciation expense for the month.

31 Service Revenue 41 1,950-

Unearned Service Revenue 24 1,950-
To record unearned portion.

31 Accounts Receivable 12 3,360-

Service Revenue 41 3,360-
To record accrued revenue.

31 Salaries Expense 51 270-

Salaries Payable 23 270-
To record accrued salaries.

THE CLOSING PROCESS

The closing entries are series of entries required at the end of the accounting period to bring the
balances of the temporary accounts to zero so that they will be ready to receive data for the next accounting
period. These temporary accounts are the revenues, expenses, and drawing accounts. These accounts are
closed at the end of each period so that we may identify their balances by the year of their occurrence. Hence,
we say the sales of 20X7 must not include the sales of 20X6.

In the closing process, a clearing account called “Income Summary" is used. After all revenue and
expense account balances are transferred to Income Summary, its balance represents the net income or net loss
for the period. Then the balance of the Income Summary account is transferred to the owner's capital account,
resulting in a zero balance in Income Summary. The other terms used are Expense and Revenue Summary or
Profit and Loss Summary.

The steps in the closing process are as follows:

1. Closing the revenue account(s). The balance in the revenue accounts are transferred to the Income
Summary account by debiting each revenue account for the amount of its balance, and crediting the
income summary account for the total revenue.
2. Closing the expense accounts. The balances in the expense accounts are transferred to the Income
Summary account by debiting the income summary account for the total expenses, and crediting each
expense account for the amount of its balance.
3. Closing the income summary account. The balance of the income summary account is transferred to
the owner’s capital. A credit balance in the income summary account represents net income and is
closed by debiting income summary and crediting the owner’s capital account. A debit balance in the
income summary account represents net loss and is closed by debiting the owner’s capital account,
and crediting the income summary account.
4. Closing the owner’s drawing account. The balance of the owner’s drawing account is transferred to
the owner’s capital account by debiting the capital account for the amount of the withdrawals, and
crediting the drawing account for its balance.
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 The closing entries are recorded on the next available space in the journal right after the adjusting entries.
They are also posted in the usual manner except that the word “Closing” is written on the Items column to
differentiate it from other posted entries. The closing entries
of Cruz Service Center appear as follows:

General Journal Page 4

Post
Date Description Debit Credit
Ref.
Closing Entries
20X1 31 Service Revenue 41 21,910-
Jan.
Income Summary 33 21,910-
To close the revenue account.

31 Income Summary 33 14,475-

Salaries Expense 51 5,070-
Rent Expense 52 3,000-
Utilities Expense 54 2,100-
Taxes Expense 53 200-
Miscellaneous Expense 59 950-
Supplies Expense 55 2,380-
Insurance Expense 56 600--
Depreciation Expense - Equipment 57 175-
To close the expense accounts.

31 Income Summary 33 7,435-

J. dela Cruz, Capital 31 7,435-
To close the income summary to capital.

31 J. dela Cruz, Capital 31 3,000-

J. dela Cruz, Drawing 32 3,000-
To close the drawing to capital.

THE LEDGER ACCOUNTS AFTER CLOSING PROCESS ARE COMPLETED

CASH Acct. No. 11
Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 1 1 50,000 Jan. 2 1 2,500
4 1 20,000 5 2 12,800
7 2 6,000 6 2 3,000
11 2 5,500 9 2 3,000
44,850 81,500 10 2 4,800
14 2 7,200
15 2 3,350
36,650

ACCOUNTS RECEIVABLE Acct. No. 12

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 8 2 14,500 Jan. 11 2 5,500
31 Adjusting 3 3,360
17,860

SUPPLIES Acct. No. 13

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 2 1 2,500 Jan. 31 Adjusting 3 2,380
6 2 5,000
5,120 7,500

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 PREPAID INSURANCE Acct. No. 14
Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 14 2 7,200 Jan. 31 Adjusting 3 600
6,600

PREPAID TAXES Acct. No. 15

Date Items PR Debit Date Items PR Credit
20X1
Jan. 31 Adjusting 3 2,200

EQUIPMENT Acct. No. 16

Date Items PR Debit Date Items PR Credit
20X1
Jan. 3 2 25,600

ACCUMULATED DEPRECIATION - EQUIPMENT Acct. No. 17

Date Items PR Debit Date Items PR Credit
20X1
Jan. 31 Adjusting 3 175

ACCOUNTS PAYABLE Acct. No. 21

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 5 2 12,800 Jan. 3 1 25,600
6 2 5,000
12 2 2,100
19,900 32,700

NOTES PAYABLE Acct. No. 22

Date Items PR Debit Date Items PR Credit
20X1
Jan. 2 1 20,000

SALARIES PAYABLE Acct. No. 23

Date Items PR Debit Date Items PR Credit
20X1
Jan. 31 Adjusting 3 270

UNEARNED SERVICE REVENUE Acct. No. 24

Date Items PR Debit Date Items PR Credit
20X1
Jan. 31 Adjusting 3 1,950

J. DELA CRUZ, CAPITAL Acct. No. 31

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 31 Closing 4 3,000 Jan. 1 1 50,000
6,600 31 Closing 4 7,435
54,435 57,435

J. DELA CRUZ, DRAWING Acct. No. 32

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 6 2 3,000 Jan. 31 Closing 4 3,000

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 INCOME SUMMARY Acct. No. 33
Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 31 Closing 4 14,475 Jan. 31 Closing 4 21,910
31 Closing 4 7,435
21,910

SERVICE REVENUE Acct. No. 41

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 31 Adjusting 3 1,950 Jan. 7 1 6,000
31 Closing 4 21,910 8 1 14,500
23,860 31 Adjusting 3 3,360
23,860

SALARIES EXPENSE Acct. No. 51

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 10 1 4,800 Jan. 31 Closing 4 5,070
31 Adjusting 3 270
5,070

RENT EXPENSE Acct. No. 52

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 9 2 3,000 Jan. 31 Closing 4 3,000

TAXES EXPENSE Acct. No. 53

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 15 2 2,400 Jan. 31 Adjusting 3 2,200
200 31 Closing 4 200
2,400

UTILITIES EXPENSE Acct. No. 54

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 12 2 2,100 Jan. 31 Closing 4 2,100

SUPPLIES EXPENSE Acct. No. 55

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 31 Adjusting 3 2,380 Jan. 31 Closing 4 2,380

INSURANCE EXPENSE Acct. No. 56

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 31 Adjusting 3 600 Jan. 31 Closing 4 600

DEPRECIATION EXPENSE Acct. No. 57

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 31 Adjusting 3 175 Jan. 31 Closing 4 175

MISCELLANEOUS EXPENSE Acct. No. 59

Date Items PR Debit Date Items PR Credit
20X1 20X1
Jan. 15 2 950 Jan. 31 Closing 4 950
Module 5 ABM 1203 - Fundamentals of Accountancy, Business and Management 1 10- NAB
POST-CLOSING TRIAL BALANCE
A post-closing trial balance is the trial balance prepared after the adjusting and closing processes.
Sometimes it is also called a balance sheet in a trial balance form, because the items appearing in the post-
closing trial balance consist of assets, liabilities, and owner’ equity. The temporary accounts had been closed,
so they are no longer included.
The post-closing trial balance of Cruz Services Center as of January 31, 20X1 is shown as follows:

CRUZ SERVICE CENTER

Post-Closing Trial Balance
January 31, 20X1

Debit Credit
Cash P 44,850
Accounts Receivable 12,360
Supplies 5,120
Prepaid Insurance 6,600
Prepaid Taxes 2,200
Equipment 25,600
Accumulated Depreciation P 175
Accounts Payable 19,900
Notes Payable 20,000
Salaries Payable 270
Unearned Service Revenue 1,950
J. dela Cruz, Capital 54,435
Total P 96,730 P96,730

REVERSING ENTRIES
For certain types of adjusting entries, reversing entries are prepared as of the first day of the new
accounting period. They are called reversing entries because they reverse the effects of the adjusting entry to
which they relate. The purpose of reversing entry is to simplify the first entry relating to that same item in the
next accounting period.
Recall the adjusting entry made by Cruz Service Center to recognize accrued salaries of P270. This
adjusting entry is made to record salaries incurred but not yet paid. Illustrated below are the entries from
January 31 through February 10, the next payday, assuming (1) no reversing entry is used, and (2) reversing
entry is used.
(1) Entries when no reversing entry is used (2) Entries when reversing entry is used

Jan. 31 Salaries Expense 270 Salaries Expense 270

Salaries Payable 270 Salaries Payable 270
to adjust the accrued
To adjust the accrued salaries
salaries.

Feb. 1 No entry
Salaries Payables 270
Salaries Expense 270
To reverse the adjusting
entry on Jan. 31
Feb. 10 Salaries Payable 270
Salaries Expense 1,330 Salaries Expense 1,600
Cash 1,600 Cash 1,600
Paid salaries of employees
Paid salaries of employees

The adjusting entries as of January 31 are the same whether or not a reversing entry is used.
The reversing entry dated February 1, is the exact reverse of the debit and credit used in the adjusting
entry. The use of the reversing entry simplifies the entry made on February 10. There is no need to
remember that accrued salary of P270 was already recorded. When the company paid P1,600, the
entry is simply a debit to Salaries Expense and a credit to Cash for P1,600.

Module 5 ABM 1203 - Fundamentals of Accountancy, Business and Management 1 11- NAB
 The end result in the accounts is the same whether or not a reversing entry is used. The T-
accounts that follow will prove this. The beginning balance in the Salaries Payable results from the
adjusting entry made on January 31.
Not all adjusting entries are reversed on the first day of the new accounting period. Ideal
entries for reversals are those relating to situations where cash is paid and received in an adjusting
entry. Such items would include accrued expenses and unbilled revenues. We do not reverse
adjustments for items that will not result in a subsequent receipt or payment of cash, such as the
adjustment for depreciation.
Adjusting entries for prepaid expenses recorded under the expense method, and unearned
revenues recorded under the revenue method are reversed. Since the closing entries made at the end
of the period affect the revenue and expense accounts, reversing entries are needed to revert back to
the original method used; namely, the expense method for prepaid expense and the revenue method
for unearned revenue. A general rule to follow is that all adjusting entries that increase assets or
liabilities are reversed. Adjusting entries that decrease assets and liabilities are not reversed.

--- END OF DISCUSSION ---

EXERCISES

Exercise 1
The trial balance of Mahal Kita Interiors at February 28, 2019:
Debit Credit
Cash P 31,800
Accounts Receivable 56,700
Supplies 26,400
Prepaid Insurance 3,450
Equipment 48,900
Accumulated Depreciation - equipment P 39,300
Building 64,200
Accumulated Depreciation - building 15,750
Land 42,450
Accounts Payable 33,900
Interest Payable
Wages Payable
Unearned Service Revenue 15,750
Notes Payable 33,600
Ayaw Nya, Capital 118,650
Ayaw Nya, Drawing 6,300
Service Revenue 30,150
Depreciation Expense- Equipment
Depreciation Expense- Building
Wages Expense 4,800
Insurance Expense
Interest Expense
Utilities Expense 1,650
Advertising Expense 450
Supplies Expense
Total P287,100 P287,100
Additional data:
a. Depreciation for the month of February; equipment, P900 and building, P450.
b. Accrued wages expense, P300.
c. Supplies on hand, P21,450.
d. Prepaid insurance expired during February, P750.
e. Accrued interest expense, P150.
f. Unearned service revenue earned during February, P7,350.
g. Accrued advertising expense, P150 (credited to Accounts Payable).
Module 5 ABM 1203 - Fundamentals of Accountancy, Business and Management 1 12- NAB
 h. Accrued service revenue, P1,650.

Requirements:
1. Prepare a ten-column worksheet for Mahal Kita Interiors.
2. Prepare at the back of the worksheet the following:
a. Income statement.
b. Statement of changes in owner’s equity.
c. Balance sheet.
d. Journalize the adjusting and closing entries
e. Post-closing trial balance.

Exercise 2
The May 31, 2018 trial balance of 2Moons Surveyors is presented as follows:

2Moons Surveyors
Trial Balance
May 31, 2018

Cash P 210,000
Accounts Receivable 930,000
Prepaid Advertising 360,000
Engineering Supplies 270,000
Survey Equipment 1,890,000
Accumulated Depreciation- S.E. P 640,000
Accounts Payable 190,000
Unearned Survey Revenues 120,000
Notes Payable 500,000
P’Beam, Capital 1,120,000
P’Beam, Drawing 700,000
Survey Revenues 6,510,000
Salaries Expense 3,270,000
Rent Expense 960,000
Insurance Expense 250,000
Utilities Expense 160,000
Miscellaneous Expense 80,000
Total P9,080,000 P9,080,000
The following information pertaining to the year-end adjustment is available:
a. The P360,000 prepaid advertising represents expenditures made on Nov. 1, 2017 for monthly
advertising over the next 18 months.
b. A count of the engineering supplies at May 31, 2018 amounted to P90,000.
c. Depreciation on the surveying equipment amounted to P160,000.
d. One-third of the unearned survey revenues has been earned at year-end.
e. At year-end, salaries in the amount of P140,000 have accrued.
f. Interest of P60,000 on the notes payable has accrued at year-end.

Requirements:
1. Prepare a ten-column worksheet for Mahal Kita Interiors.
2. Prepare at the back of the worksheet the following:
a. Income statement.
b. Statement of changes in owner’s equity.
c. Balance sheet.
d. Journalize the adjusting and closing entries
e. Post-closing trial balance.

Exercise 3
Classify the accounts listed below as permanent or temporary, and indicate whether or not each
account is closed at the end of the accounting period. Also, indicate the financial statement in which
each account will appear.

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 Closed Balance Income
Account Title Permanent Temporary
Yes No Sheet Statement
Example: Building X X X

1. Rent expense
2. Prepaid Insurance
3. Accounts Receivable
4. Supplies Expense
5. Accumulated Depreciation
6. Interest Payable
7. Service Revenues
8. Notes Payable
9. Depreciation Expense
10. Noel, Capital

Exercise 4
Listed below are the ledger accounts appearing in the adjusted trial balance columns of a worksheet from
Newwiee Company. On the space provided, indicate in which column of the worksheet the amount in each
account will be extended by entering the following letters: A. Income statement, debit; B. Income statement,
credit; C. Balance sheet, debit; D. Balance sheet, credit.
1. Cash 11. Accounts receivable
2. Buildings 12. Interest Expense
3. Salaries expense 13. Interest Revenues
4. Mortgage payable 14. Unearned revenues
5. Prepaid insurance 15. Office Supplies
6. Equipment 16. Withdrawals
7. Utilities expense 17. Interest payable
8. Land 18. Accum. Depreciation
9. Service revenues 19. Rent expense
10. Salaries payable 20. Accounts payable

Module 5 ABM 1203 - Fundamentals of Accountancy, Business and Management 1 14- NAB