5.

Completing the Cycle

Closing Entries

Types of Accounts

1. Permanent or Real Accounts

a. Asset accounts
b. Liability accounts
c. Equity accounts

2. Temporary or Nominal Accounts

a. Revenue accounts
b. Expense accounts
c. Gains and Losses accounts
d. Equity drawing accounts
e. Income and Expense summary account

3. Mixed Accounts

At the end of the accounting period, the temporary or nominal accounts are closed. The following
entries are recorded and posted:

1. Revenue accounts are closed (debited) against the Income and Expense Summary account.
2. Cost of goods sold accounts are closed (credited) against the Income and Expense Summary
account.
3. Expense accounts are closed (credited) against the Income and Expense Summary account.
4. The resulting balance of the Income and Expense Summary account is closed to the Equity
account.
5. Any drawing account is closed against the Equity account.

Exercise 1.
Based on the following Adjusted Trial Balance of Pacioli General Services, prepare the closing entries.

PACIOLI GENERAL SERVICES

Adjusted Trial Balance
As of January 31, 2021
Cod
Account Title Debit Credit
e
101 Cash P76,000
 111 Accounts Receivable 22,000
121 Supplies 7,000
151 Equipment 30,000
152 Accumulated Depreciation - Equipment  P500
201 Accounts Payable 10,500
301 Pacioli, Capital 100,000
311 Pacioli, Drawing 10,000
401 Service Revenue 50,000
601 Salaries 12,000
602 Depreciation 500
603 Supplies Expense 1,000
604 Utility Expense 2,500
TOTAL   P161,000  P161,000

Post-Closing Trial Balance

A Post-Closing Trial Balance is prepared after the recording and posting of the closing entries. The remaining
Permanent/Real accounts of assets, liabilities and equity are presented with their balances. This provides the starting
balances for the next accounting period.

Exercise 2.

Prepare the post-closing trial balance of Pacioli General Services (Exercise 1)

Assignment. Completing the Cycle

PACIOLI GENERAL SERVICES

Adjusted Trial Balance

As of January 31, 2021

Cod
Account Title Debit Credit
e

101 Cash P76,000

111 Accounts Receivable 22,000

121 Supplies 7,000

151 Equipment 30,000

152 Accumulated Depreciation - Equipment  P500

201 Accounts Payable 8,000

202 Accrued Expenses Payable 2,500

301 Pacioli, Capital 100,000

311 Pacioli, Drawing 10,000

401 Service Revenue 50,000

601 Salaries 12,000

602 Depreciation 500

603 Supplies Expense 1,000

604 Utility Expense 2,500

 TOTAL   P161,000  P161,000

Based on the foregoing data, prepare the following:

1. Closing journal entries

2. Post-Closing Trial Balance

PACIOLI GENERAL SERVICES

Post-Closing Trial Balance

As of January 31, 2021

Cod
Account Title Debit Credit
e

101 Cash P76,000

111 Accounts Receivable 22,000

121 Supplies 7,000

151 Equipment 30,000

152 Accumulated Depreciation - Equipment  P500

201 Accounts Payable 8,000

202 Accrued Expenses Payable 2,500

301 Pacioli, Capital 124,000

TOTAL   P135,000  P135,000

laim from a customer for services rendered is an account reported as

Select one:

a.

Account receivable in the balance sheet

b.

Service revenue in the statement of cash flows

c.

Accounts payable in the balance sheet

d.

Service revenue in the income statement

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The correct answer is: Account receivable in the balance sheet

Question 2

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Which account is used to close the revenue, purchases and expense accounts?

Select one:

a.

Revenue account

b.

Drawing account

c.

Income and expense summary account

d.

Capital account

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The correct answer is: Income and expense summary account

Question 3
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A business of two or more persons who bind themselves to contribute money, property or industry to a common fund,
with the intention of dividing the profits among themselves

a.

Sole proprietorship

b.

Partnership

c.

Corporation

d.

Cooperative

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The correct answer is:

Partnership

Question 4

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Which of the following accounts would not appear in the post-closing trial balance?

Select one:

a.

Unearned Service Revenue

b.

Doubtful Accounts Expense

c.

Accrued Interest Payable

d.

Accumulated Depreciation

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The correct answer is: Doubtful Accounts Expense

Question 5

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Which of the following steps may be omitted in the completion of the accounting cycle?

Select one:

a.

Reversal of some adjustments are made

b.

Adjusting entries are journalized and then posted to the general ledger

c.

Entries are posted to the general ledger

d.

Financial statements are prepared

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The correct answer is: Reversal of some adjustments are made

Question 6

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Which of the following is true about trial balance?

Select one:

a.

If total debits is equal to total credits, it is a proof that no mathematical error has been committed.

b.

The trial balance will not balance if a transaction is recorded twice.

c.

The trial balance is a proof that all transactions are recorded correctly if it is balanced.

d.

It is a list of all accounts with open balances.

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The correct answer is: It is a list of all accounts with open balances.

Question 7

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Businesses must register in the following except

a.

Cooperative Development Authority

b.

Department of Trade and Industry

c.

Securities and Exchange Commission

d.

Department of Business and Management

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The correct answer is:

Department of Business and Management

Question 8

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A journal entry records the effects of a transaction or an event expressed in terms of debit and credit. Which of the
following is not a correct journal entry?

Select one:

a.

An entry with one or more debits only

b.

An entry with two or more debits and one credit

c.

An entry with one debit and one credit

d.

An entry with one debit and two or more credits

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The correct answer is: An entry with one or more debits only
Question 9

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To which account is the Drawing account closed to?

Select one:

a.

Income and expense summary account

b.

Expense account

c.

Liability account

d.

Capital account

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The correct answer is: Capital account

Question 10

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Which of the following accounts are closed at the end of the accounting period?

Select one:

a.

Asset accounts
b.

Equity accounts

c.

Liability accounts

d.

Revenue accounts

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Your answer is incorrect.

The correct answer is: Revenue accounts

To which account is the Drawing account closed to?

Select one:

a.
Liability account

b.
Expense account

c.
Income and expense summary account

d.
Capital account
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The correct answer is: Capital account

Question 2
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Which of the following would appear in an income statement?
Select one:

a.
Cash payments for expenses
b.
Expenses that are paid

c.
Expenses not yet paid

d.
Expenses whether paid or not
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The correct answer is: Expenses whether paid or not

Question 3
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Which account is used to close the revenue, purchases and expense accounts?

Select one:

a.
Capital account

b.
Income and expense summary account

c.
Drawing account

d.
Revenue account
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The correct answer is: Income and expense summary account

Question 4
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The obligations of an enterprise to non-owners
Select one:
a.
Expenses

b.
Revenues

c.
Assets

d.
Liabilities
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The correct answer is: Liabilities

Question 5
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Transactions are recorded chronologically in the

Select one:

a.
Trial Balance

b.
General Journal

c.
Chart of Accounts

d.
General Ledger
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The correct answer is: General Journal

Question 6
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Which are temporary accounts?
Select one:

a.
Insurance expenses, Professional fees, Capital

b.
Insurance expenses, Professional fees, Drawing

c.
Cash, Prepaid expenses, Drawing

d.
Accounts Payable, Prepaid expenses, Rental expenses
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The correct answer is: Insurance expenses, Professional fees, Drawing

Question 7
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Which accounts are closed at the end of the accounting period?

Select one:

a.
Equity accounts

b.
Permanent or real accounts

c.
Nominal or temporary accounts

d.
Balance Sheet accounts
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The correct answer is: Nominal or temporary accounts

Question 8
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Question text
Which of the following accounts are not closed at the end of the accounting period?
Select one:

a.
Purchases accounts

b.
Expense accounts

c.
Revenue accounts

d.
Capital accounts
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The correct answer is: Capital accounts

Question 9
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Which of the following is an operating cash flow?

Select one:

a.
Withdrawals of cash by owners

b.
Payment for purchased equipment

c.
Payments to banks for loan borrowings

d.
Payments to suppliers
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The correct answer is: Payments to suppliers

Question 10
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Which of the following is not an accountable transaction?

Select one:

a.
Spending of cash of the proprietor for his wedding

b.
Purchase of merchandise inventory in cash

c.
Purchase of equipment on account

d.
Cash investment into the business by the proprietor
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The correct answer is: Spending of cash of the proprietor for his wedding

Question 11
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Which situation indicates a net loss in the income statement accounts?
Select one:

a.
Total debits equals total credits

b.
Total debits and total credits have zero balances

c.
Total debits exceed total credits

d.
Total credits exceed total debits
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The correct answer is: Total debits exceed total credits

Question 12
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Adjust DoIt Company reported the following unadjusted balances at year-end:

Debit  Credit
Accounts Receivable P8,000,000  
Allowance for doubtful accounts  16,000
 Net credit sales    7,500,000

The company estimates that 3% of the net credit sales would become uncollectible.

What amount should be reported as doubtful accounts expense for the current year?

a.
P225,000

b.
P240,000

c.
P160,000

d.
P224,000
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The correct answer is:
P225,000

Question 13
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An adjusting entry is erroneously recorded twice. Which of the following statements will occur?
a.
Equity will be overstated

b.
Expenses will be understated

c.
Net income will be understated

d.
Assets will be overstated
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The correct answer is:
Net income will be understated

Question 14
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If the totals of a trial balance are not equal, it may indicate that
Select one:

a.
The balance of one account is incorrectly computed

b.
A transaction has been recorded twice

c.
A transaction has been recorded with an erroneous amount on both debit and credit

d.
A transaction is not recorded
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The correct answer is: The balance of one account is incorrectly computed

Question 15
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Question text
After posting all the closing entries
Select one:

a.
The revenues, expenses and income summary accounts have zero balances.

b.
The assets, liabilities and equity accounts have zero balances.

c.
The capital and drawing accounts have zero balances

d.
All the accounts have zero balances.
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The correct answer is: The revenues, expenses and income summary accounts have zero balances.

Question 16
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Which is not one of the legal requirements of a business?

a.
Secure business registration certificates and permits

b.
Conduct profitable activities

c.
Issue receipts and invoices

d.
Maintain accounting records
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The correct answer is:
Conduct profitable activities

Question 17
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Which of the following accounts will not appear in the post-closing trial balance?

Select one:

a.
Unearned Interest Income

b.
Accumulated Depreciation

c.
Prepaid Insurance Expense

d.
Interest Expense
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The correct answer is: Interest Expense

Question 18
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After posting the closing entries
Select one:

a.
Revenue accounts, expense accounts and income summary accounts have zero balances

b.
Income summary, revenue accounts and equity accounts have zero balances

c.
The balance of all accounts will become zero

d.
Expense accounts, revenue accounts and equity accounts have zero balances
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The correct answer is: Revenue accounts, expense accounts and income summary accounts have zero
balances

Question 19
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Which of the following are real or permanent accounts?

Select one:

a.
Rent expense, capital and prepaid insurance

b.
Notes payable, notes receivable and cash

c.
Prepaid rent, accumulated depreciation and sales

d.
Accounts receivable, commission income and salaries
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The correct answer is: Notes payable, notes receivable and cash

Question 20
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Question text
The following are examples of service businesses except

a.
Spendmore Supermarket

b.
Philippine Airlines

c.
Cagayan River Hotel and Resorts

d.
Azina Water Refilling Station
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The correct answer is:
Spendmore Supermarket