Adjusting &

Closing Entries

Adjusting & Closing Entries

Adjusting Entries

Adjusting/Adjustment means to make a

correct record of a transaction which has
not been entered or which has been
entered but in an incomplete or wrong way.

 2005
 2006
 2007
Adjusting & Closing Entries
Adjusting & Closing Entries
 1

Entries to record Un recorded Expenses/

Outstanding / Accrued Expenses
 The expenses which have been incurred but
not paid.
 At the end of fiscal year, the services have
been received but the payments not yet made.
Such expenses are known as accrued
expenses /Out standing expenses e.g.
 Salaries , Advertisement etc.

Adjusting & Closing Entries

 Entries to apportion recorded
costs/prepaid expenses
• A prepayment is an item of expense that has been paid
during the current accounting period but will not be
incurred until the next accounting period or

expense paid in advance before they have fallen due

are called prepaid expense.

• E.g. Prepaid Insurance, Prepaid Rent etc

Adjusting & Closing Entries

2
Entries to Record unrecorded Revenue/
outstanding/ Accrued Revenue
 Income actually earned during the year but not
yet received is called Accrued Income

 Or Income which has been earned but not

received

Revenue Receivable
Revenue from services etc
Adjusting & Closing Entries

e
Deferred Income / prepaid , Unearned
Revenue

Income received but not earned during a prescribed

period is called unearned Revenue. Or Income received
in advance but not earned yet. e.g.

Airlines sell many of their tickets well in advance of

a schedule flight or Any service income
Adjusting & Closing Entries
Entries ?

 Rent of the building for the month Sep23 is

unpaid amounting $ 500.
 Fee for the month Sep23 earned but not
received yet $ 1500
 Salary of Employs for the month of Oct2023
paid in Advance200 $
 Fee of the Sep23 Receive in Advance1500$

Adjusting & Closing Entries

ILLUSTRATION
 Suppose that an insurance premium is paid on 1st July
amounting to $1000 covering the period up o 30th June
following year. In 1st July when the amount premium was paid
following entry was madeJournal
in General Journal

Jul 1 Prepaid Insurance 1000

Cash 1000
Inurance Premium paid in advance

Adjusting
Entry
Dec 31 Insurance Expense 500
Prepaid Insurance 500
Being
Adjusting & Closing Entries the amount of Insurance paid
ILLUSTRATION
 A Transport company had received $10,000 for providing services to the
customer from 1st November to 28th February. The Accounting year ends on
31st December. On this date, the company has earned only $5000 and
remaining $5000 has not yet been earned, though received

Journal

Cash 10000
Unearned Service Income 10000
Being the amount of income received in advance

Adjusting
Entry
Dec Unearned Service Income 5000
Service income 5000
31 Being amount of income earned
Adjusting & Closing Entries
Closing the Temporary Equity
Accounts
 Revenue, expense and drawing The closing process
accounts are called temporary or gets the temporary
nominal accounts because they
accumulate the transactions of only one accounts ready for the
accounting period. next accounting period.
 The owner’s equity account and other
balance sheet accounts are called
permanent or real accounts, because
their balances continue to exist beyond
the current accounting period.

 At the end of accounting period, the

temporary or nominal accounts are
closed and their effects are transferred
to owner’s equity account. This process
is known as closing.
Adjusting & Closing Entries
 Closing the Temporary Equity
Accounts
The closing process consists of
following steps.
The closing process
Close revenue accounts to gets the temporary
income summary account. accounts ready for the
next accounting period.
Close expense accounts to
income summary account.

 Close income summary account

to owner’s equity account.

Close drawings account to

owner’s equity account.

Adjusting & Closing Entries

 Closing Entries for Revenue
Accounts
Since
Since Sales
Sales Revenue
Revenue has
has aa credit
credit balance,
balance, the
the
closing
closing entry
entry requires
requires aa debit
debit to
to the
the Sales
Sales Revenue
Revenue
account.
account.

GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
Dec 31 Repair Service Revenue 162,210
Rent Revenue Earned 2,000
Income Summary 164,210
To close the revenue account.
Adjusting & Closing Entries
Closing Entries for Revenue
Accounts
Rep Ser Reveune
162,210 162,210

Income Summary
162,210
2,000 Rent Rev Earned
2,000 2,000

-
164,210

Adjusting & Closing Entries

 Closing Entries for Expense Accounts
Since
Sinceexpense
expenseaccounts
accountshave
haveaadebit
debitbalance,
balance,the
theclosing
closingentry
entryrequires
requiresaacredit
creditto
tothe
the
expense
expenseaccounts.
accounts.

GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
Dec 31 Income Summary 113,600
Advertising Expense 3,900
Wages Expense 58,750
Supplies Expense 7,500
Dep. Exp: Building 1,800
Dep. Exp: Tools and Equipment 2,450
Utilities Expense 19,400
Insurance Expense 16,500
Interest Expense
Adjusting & Closing Entries 3,300
To close the expense accounts
Closing Entries for Expense
Accounts Advertising Exp.
3,900 3,900
-

Wages Exp.
58,750 58,750
-

Supplies Exp.
7,500 7,500
-
Income Summary
Dep. Exp. Building
1,800 1,800
-
113,600 164,210
Dep. Exp. T & Eq.
2,450 2,450
-

Utilities Exp.
19,400 19,400
-

Insurance Exp.
50,610
16,500 16,500
-

Interest Exp.
Net Income
3,300 3,300
Adjusting & Closing Entries -
 Closing the Income Summary
Account
Since
Since Income
Income Summary
Summary has
has aa $50,610
$50,610 credit
credit
balance,
balance, the
the closing
closing entry
entry requires
requires aa debit
debit to
to Income
Income
Summary.
Summary.

GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
Dec 31 Income Summary 50,610
Michael McBryan, Capital 50,610
To close income summary account.

Adjusting & Closing Entries

Closing the Income Summary
Account

Income Summary
113,600 164,210
Michael McBryan, 50,610
Capital
82,600
50,610 -

The balance in Income

133,210 Summary is now zero.
Adjusting & Closing Entries
 Closing the Drawing Account
Since
Since the
the Drawing
Drawing account
account has
has aa debit
debit balance,
balance, the
the
closing
closing entry
entry requires
requires aa credit
credit to
to the
the Drawing
Drawing
account.
account.

GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
Dec 31 Michael McBryan, Capital 44,800
Michael McBryan, Drawing 44,800
To close the drawing account.
Adjusting & Closing Entries
Closing the Drawing Account

Drawing Michael McBryan,

44,800 44,800 Capital
44,800 82,600
50,610
-
88,410

Adjusting & Closing Entries