Closing Entries and Adjusting Entries in Accounting

This report outlines the meaning of the closing entries, adjusting entries. This report further shows the various calculations pertaining to the closing entries, unadjusted trial balance, adjustments, adjusted trial balance, and income statement, statement of the owners’ equity and the statement of financial position of the company for the year.

ACCOUNTING 1
ACCOUNTING

ACCOUNTING 2
Contents
Step 2:.........................................................................................................................................3
Step 3:.........................................................................................................................................4
Step 4:.........................................................................................................................................7
Step 5:.........................................................................................................................................8
Step 6:.......................................................................................................................................10
Step 7:......................................................................................................................................10
Introduction:.........................................................................................................................10
Part 1:....................................................................................................................................11
Part 2:....................................................................................................................................12
Part 3:....................................................................................................................................14
Part 4:....................................................................................................................................17
Conclusion:...........................................................................................................................18
References:..............................................................................................................................18

ACCOUNTING 3
Step 2:
Particulars Debit Credit
Interest expense
17,200.0
0
To interest payable
17,200.0
0
Supplies expense
1,290.0
0
To Supplies
1,290.0
0
Insurance expense
2,752.0
0
To prepaid insurance
2,752.0
0
Depreciation expense-office furniture
8,000.0
0
To Accumulated depreciation-office
furniture 8000
Depreciation expense-office equipment
16,000.0
0

ACCOUNTING 4
To Accumulated depreciation-office
equipment
16,000.0
0
Depreciation expense-equipment
12,000.0
0
To Accumulated depreciation-equipment
12,000.0
0
Depreciation expense-automobile
17,000.0
0
To Accumulated depreciation-automobile
17,000.0
0
Revenue
10,750.0
0
To unearned revenue
10,750.0
0
Step 3:
Unadjuste
d trial
balance
Adjustm
ent
Adjust
ed trial
balance
Inco
me
state
ment
Bala
nce
Shee
t
Deb
it
Cre
dit
De
bit
Cr
edi
Debit Cre
dit
Debit Cre
dit
Debi
t
Cre
dit

ACCOUNTING 5
t
1
0
1 Cash at Bank
7
1,5
00.
00
71,50
0.00
71
,500.
00
1
0
5
Accounts
Receivable
2
3,8
30.
00
23,83
0.00
23
,830.
00
1
1
5 Supplies
1,7
20.
00
1
,29
0.0
0
43
0.00
430.
00
1
2
0
Prepaid
Insurance
3,4
40.
00
2
,75
2.0
0
68
8.00
688.
00
1
3
5
Office
Furniture
4
3,0
00.
00
43,00
0.00
43
,000.
00
1
3
7
Acc.
Depreciation.
- Furniture
8
,00
0.0
8,0
00.
8,0
00.

ACCOUNTING 6
0 00 00
1
4
0
Office
Equipment
8
6,0
00.
00
86,00
0.00
86
,000.
00
1
4
1
Acc.
Depreciation
- Equipment
16
,00
0.0
0
1
6,0
00.
00
1
6,0
00.
00
1
4
5
Store
Equipment
1,2
9,0
00.
00
1,29,00
0.00
1,29
,000.
00
1
4
6
Acc.
Depreciation
- Equipment
12
,00
0.0
0
1
2,0
00.
00
1
2,0
00.
00
1
7
0 Automobile
1,7
2,0
00.
00
1,72,00
0.00
1,72
,000.
00
1
7
1
Acc.
Depreciation
- Automobile
17
,00
0.0
0
1
7,0
00.
00
1
7,0
00.
00

ACCOUNTING 7
2
0
1
Accounts
Payable
4
7,66
0.00
4
7,6
60.
00
4
7,6
60.
00
2
0
1
Interest
Payable
7
1,49
0.00
17
,20
0.0
0
8
8,6
90.
00
8
8,6
90.
00
2
0
1
Unearned
revenue
2
1,50
0.00
10
,75
0.0
0
1
0,7
50.
00
1
0,7
50.
00
2
0
1 Loan Payable
8,60
0.00
8,6
00.
00
8,6
00.
00
2
0
1
Mortgage
Payable
1,7
2,00
0.00
1,7
2,0
00.
00
1,7
2,0
00.
00
2
0
1 Paul's Capital
5
1,84
2.00
5
1,8
42.
00
1,4
5,7
48.
00
2 Paul's 17

ACCOUNTING 8
0
1 Drawings
172
.00 2.00
2
0
1 Revenue
1,7
2,00
0.00
10
,75
0.0
0
1,8
2,7
50.
00
1,8
2,7
50.
00
2
0
1
Advertising
Expense
1,4
00.
00
1,40
0.00
1,
400.0
0
2
0
1
Automobile
Expense
5,7
75.
00
5,77
5.00
5,
775.0
0
2
0
1
Depreciation
Expense -
Furniture
8
,00
0.0
0
8,00
0.00
8,
000.0
0
2
0
1
Depreciation
Expense -
Equipment
16
,00
0.0
0
16,00
0.00
16,
000.0
0
2
0
1
Depreciation
Expense -
Store
12
,00
0.0
12,00
0.00
12,
000.0
0

ACCOUNTING 9
Equipment 0
2
0
1
Depreciation
Expense -
Automobile
17
,00
0.0
0
17,00
0.00
17,
000.0
0
2
0
1
Insurance
Expense
1,2
00.
00
2
,75
2.0
0
3,95
2.00
3,
952.0
0
2
0
1
Maintenance
Expense
4,9
00.
00
4,90
0.00
4,
900.0
0
2
0
1
Miscellaneou
s Expense
1,1
55.
00
1,15
5.00
1,
155.0
0
2
0
1 Rent Expense - -
2
0
1
Supplies
Expense
1
,29
0.0
0
1,29
0.00
1,
290.0
0
2 Utilities

ACCOUNTING 10
0
1 Expense - -
2
0
1
Interest
Expense
17
,20
0.0
0
17,20
0.00
17,
200.0
0
Total
5,4
5,0
92.
00
5,4
5,09
2.00
84
,99
2.0
0
84
,99
2.0
0
6,15,29
2.00
6,1
5,2
92.
00
88,
672.0
0
1,8
2,7
50.
00
5,26
,448.
00
5,2
6,4
48.
00
Profit
earned
94,
078.0
0
1,82,
750.0
0
1,8
2,7
50.
00
Step 4:
Income statement

ACCOUNTING 11
Revenue
1,82,750.0
0
Less: expenses:
Advertising Expense
1,400.
00
Automobile Expense
5,775.
00
Depreciation Expense - Furniture
8,000.
00
Depreciation Expense - Equipment
16,000.
00
Depreciation Expense - Store
Equipment
12,000.
00
Depreciation Expense - Automobile
17,000.
00
Insurance Expense
3,952.
00
Maintenance Expense
4,900.
00
Miscellaneous Expense
1,155.
00
Rent Expense -
Supplies Expense 1,290.

ACCOUNTING 12
00
Utilities Expense -
Interest Expense
17,200.
00
88,672.0
0
Gross profit
94,078.0
0
Step 5:
Balance Sheet
Cash at bank
71,500.0
0
Accounts receivables
23,830.0
0
Supplies
430.0
0
Prepaid insurance
688.0
0
Total Current Assets
96,448.0
0

ACCOUNTING 13
Office furniture less accumulated
depreciation
35,000.0
0
Office equipment less accumulated
depreciation
70,000.0
0
Store equipment less accumulated
depreciation
1,17,000.0
0
Automobile less accumulated
depreciation
1,55,000.0
0
Total Non-current Assets
3,77,000.0
0
Total Assets
4,73,448.0
0
Liabilities:
Accounts Payable
47,660.0
0
Interest Payable
88,690.0
0
Unearned revenue
10,750.0
0
Loan Payable 8,600.0

ACCOUNTING 14
0
Mortgage Payable
1,72,000.0
0
Total current liabilities
3,27,700.0
0
Shareholders equity:
Capital
1,45,748.0
0
Total liabilities and shareholders
equity
4,73,448.0
0
Statement of changes in equity
Opening capital
51,842.0
0
Less: drawings
172.0
0
Add: gross profit
94,078.0
0 1,45,748.00

ACCOUNTING 15
closing capital 1,45,748.00
Step 6:
Particulars Debit Credit
Revenues
1,82,750.0
0
To Income summary
1,82,750.0
0
Income summary
88,672.0
0
To Advertising Expense
1,400.0
0
To Automobile Expense
5,775.0
0
To Depreciation Expense - Furniture
8,000.0
0
To Depreciation Expense - Equipment
16,000.0
0
To Depreciation Expense - Store
Equipment
12,000.0
0
To Depreciation Expense - Automobile
17,000.0
0
To Insurance Expense 3,952.0

ACCOUNTING 16
0
To Maintenance Expense
4,900.0
0
To Miscellaneous Expense
1,155.0
0
To Rent Expense -
To Supplies Expense
1,290.0
0
To Utilities Expense -
To Interest Expense
17,200.0
0
Step 7:
Introduction:
This report outlines the meaning of the closing entries, adjusting entries. This report further
shows the various calculations pertaining to the closing entries, unadjusted trial balance,
adjustments, adjusted trial balance, and income statement, statement of the owners’ equity
and the statement of financial position of the company for the year.
Part 1:
The trial balance is the one which contains the balances that are reported in the general
ledger. These are the ledgers that are prepared by the company in order to understand the
closing balances in the various accounts of the company. This is the statement wherein all of
the debits, in case of the assets and expenses, and credits, in the case of revenue or incomes

ACCOUNTING 17
and shareholders and liabilities are reported in. if the total of the shareholders equity and the
liabilities is not equal to the total amount of the assets and the expenses, then there is an error.
This merely means that there could be a double recording of a transactions, no recording at
all of that transaction, or wrong recording of the transaction. The companies nowadays use
various software’s for the purposes of preparing these trial balances and the financial
statements. The frits thing today which is asked aby an auditor when he comes to conduct the
audit includes the print out of the trial balance of the company, he is the one who tallies these
balances with the opening balance of the current year. In case, there is an error in this, then
the financial statements prepared are incorrect and the company would need to prepare them
yet again since the preparation of these financial statements is the sole responsibility of the
management. Any sort of the human intervention into the financials of the company is
usually not preferred by the company. This is mainly due to the fact that human intervention
could lead to making of mistakes which may prove to be bad for the company (Bragg, 2019).
The following are the objectives of preparing the trial balance:
 Ascertainment of the arithmetical accuracy: the company records the debit and the
credit in the ledger balances in the trial balance. It is the summary of all of the ledger
accounts. The total of the amount of the debt side would always be equal to the
amount on the credit side. This is mainly due to the reason that these sides have to be
equal. When this happens, then it is assumed that these ledger accounts prepared are
accurate. Hence, this further ensures that the ledgers prepared are correct. But then
this is also true that this is not the conclusive evidence of the correctness and the
fairness of the various accounts.
 Location of the errors: this helps in the locating of the errors that occurs in the
posting or the recording of the various transactions. When the total of the debit and

ACCOUNTING 18
the credit is not equal, then we know that there is an error in total, posting in the
ledgers, etc.
 Preparation of the financials: this is the statement which contains the summary of
all of the ledger accounts. There is no need to refer to the individual accounts. The
final balance of the various accounts could easily be taken from the trial balance.
Then the final balances are transferred to the trading and the profit and loss account
and the balance sheet.
The following are the steps in the preparation of the trial balance:
 The determination of the balances in the ledger accounts
 Preparation of the trial balance format
 Listing down of each account and their balances in the respective columns
 Calculation of the total of debit side and the total of the credit side.
 If the total of the debit is equal to the total of the credit, then the arithmetical accuracy
of the information contained can be verified (Clear tax, 2019).
Part 2:
The adjusting entries are the ones that helps in the converting of the accounting records to the
accrual basis of accounting since the books of accounts are prepared on accrual basis. An
adjusting entry is made prior to the issuance of the financials of the company (Accounting
coach, 2019).
This is done in the following two cases:

ACCOUNTING 19
 There are some of the revenue or the expenses that have not been reported in the
accounting records but then it is important to record these revenues and the expenses
and the same must be included in the financials of the current year
 There is an expense or an income that has been recorded in the financials but then the
same needs to be bifurcated.
The above entries would include the following:
 Balance sheet which is usually interest payable etc
 Income statement account which is an interest expense account (Accounting verse,
2019).
The following is an example of it:
Particulars Debit Credit
Interest expense
17,200.0
0
To interest payable
17,200.0
0
Supplies expense
1,290.0
0
To Supplies
1,290.0
0
Insurance expense
2,752.0
0
To prepaid insurance 2,752.0

ACCOUNTING 20
0
Depreciation expense-office furniture
8,000.0
0
To Accumulated depreciation-office
furniture 8000
Depreciation expense-office equipment
16,000.0
0
To Accumulated depreciation-office
equipment
16,000.0
0
Depreciation expense-equipment
12,000.0
0
To Accumulated depreciation-equipment
12,000.0
0
Depreciation expense-automobile
17,000.0
0
To Accumulated depreciation-automobile
17,000.0
0
Revenue
10,750.0
0
To unearned revenue 10,750.0

ACCOUNTING 21
0
Part 3:
An adjusted trial balance is the statement that is just like an unadjusted trial balance. There
are mainly 3 columns in it that shows the names of the accounts, the amount of the debits
which contains the total of the debit balances and the third column is of the credit balances
which contains the credit balances.
Not like the unadjusted trial balance, an adjusted trial balance is the one that starts with the
assets, liabilities and the equity accounts and ends with the income and the expenses accounts
(Accounting coach, 2019).
The following is an example:
Unadjusted
trial balance Adjustment
Adjusted
trial balance
Debit Credit Debit
Credi
t Debit Credit
1
0
1 Cash at Bank
71,5
00.00 71,500.00

ACCOUNTING 22
1
0
5 Accounts Receivable
23,8
30.00 23,830.00
1
1
5 Supplies
1,7
20.00
1,29
0.00 430.00
1
2
0 Prepaid Insurance
3,4
40.00
2,75
2.00 688.00
1
3
5 Office Furniture
43,0
00.00 43,000.00
1
3
7
Acc. Depreciation. -
Furniture
8,00
0.00
8,0
00.00
1
4
0 Office Equipment
86,0
00.00 86,000.00
1
4
1
Acc. Depreciation -
Equipment
16,00
0.00
16,0
00.00
1
4
5 Store Equipment
1,29,0
00.00 1,29,000.00
1 Acc. Depreciation - 12,00 12,0

ACCOUNTING 23
4
6 Equipment 0.00 00.00
1
7
0 Automobile
1,72,0
00.00 1,72,000.00
1
7
1
Acc. Depreciation -
Automobile
17,00
0.00
17,0
00.00
2
0
1 Accounts Payable
47,6
60.00
47,6
60.00
2
0
1 Interest Payable
71,4
90.00
17,20
0.00
88,6
90.00
2
0
1 Unearned revenue
21,5
00.00
10,75
0.00
10,7
50.00
2
0
1 Loan Payable
8,6
00.00
8,6
00.00
2
0
1 Mortgage Payable
1,72,0
00.00
1,72,0
00.00
2
0
Paul's Capital 51,8
42.00
51,8
42.00

ACCOUNTING 24
1
2
0
1 Paul's Drawings
1
72.00 172.00
2
0
1 Revenue
1,72,0
00.00
10,75
0.00
1,82,7
50.00
2
0
1 Advertising Expense
1,4
00.00 1,400.00
2
0
1 Automobile Expense
5,7
75.00 5,775.00
2
0
1
Depreciation Expense -
Furniture
8,00
0.00 8,000.00
2
0
1
Depreciation Expense -
Equipment
16,00
0.00 16,000.00
2
0
1
Depreciation Expense -
Store Equipment
12,00
0.00 12,000.00
2
0
1
Depreciation Expense -
Automobile
17,00
0.00 17,000.00

ACCOUNTING 25
2
0
1 Insurance Expense
1,2
00.00
2,75
2.00 3,952.00
2
0
1 Maintenance Expense
4,9
00.00 4,900.00
2
0
1 Miscellaneous Expense
1,1
55.00 1,155.00
2
0
1 Rent Expense -
2
0
1 Supplies Expense
1,29
0.00 1,290.00
2
0
1 Utilities Expense -
2
0
1 Interest Expense
17,20
0.00 17,200.00
Total
5,45,0
92.00
5,45,0
92.00
84,99
2.00
84,99
2.00 6,15,292.00
6,15,2
92.00

ACCOUNTING 26
Part 4:
The adjusting entries are the ones that are reported as at the end of the year or prior to when
the financials of the company are prepared. This is done for the purposes of entering the
accounting records of the company and to make sure that the financial statements prepared
are up to date while the closing entries are the ones that are recorded at the end of the period
of accounting and these are reported into the accounts after the financials have been prepared
(Bayt, 2019).
The following is an example of closing entries:
Particulars Debit Credit
Revenues
1,82,750.0
0
To Income summary
1,82,750.0
0
Income summary
88,672.0
0
To Advertising Expense
1,400.0
0
To Automobile Expense
5,775.0
0
To Depreciation Expense - Furniture
8,000.0
0
To Depreciation Expense - Equipment
16,000.0
0

ACCOUNTING 27
To Depreciation Expense - Store
Equipment
12,000.0
0
To Depreciation Expense - Automobile
17,000.0
0
To Insurance Expense
3,952.0
0
To Maintenance Expense
4,900.0
0
To Miscellaneous Expense
1,155.0
0
To Rent Expense -
To Supplies Expense
1,290.0
0
To Utilities Expense -
To Interest Expense 17,200.0
0
Conclusion:
In the nutshell, the trial balance is the statement which contains the closing balances of all of
the accounts or the ledgers. Further, an adjusted trial balance is the one that contains all of the
adjustments that have been taken into account. The closing entries are entered so as to close
the financials for the current year.
The adjusting entries are the ones that shows the various adjustments that have been made
during the period.

ACCOUNTING 28
References:
AccountingCoach.com. (2019). What are adjusting entries? | AccountingCoach. [online]
Available at: https://www.accountingcoach.com/blog/appreciating-adjusting-entries
[Accessed 21 May 2019].
AccountingCoach.com. (2019). What is an adjusted trial balance? | AccountingCoach.
[online] Available at: https://www.accountingcoach.com/blog/what-is-an-adjusted-trial-
balance [Accessed 21 May 2019].
accountingverse.com. (2019). Types and Purpose of Adjusting Entries - AccountingVerse.
[online] Available at: https://www.accountingverse.com/accounting-basics/adjusting-entries-
introduction.html [Accessed 21 May 2019].
Bayt.com. (2019). What is the difference between adjusting entries and closing entries? -
Bayt.com Specialties. [online] Available at:
https://specialties.bayt.com/en/specialties/q/57214/what-is-the-difference-between-adjusting-
entries-and-closing-entries/ [Accessed 21 May 2019].
Bragg, S. and Bragg, S. (2019). The purpose of a trial balance. [online] AccountingTools.
Available at: https://www.accountingtools.com/articles/what-is-the-purpose-of-a-trial-
balance.html [Accessed 21 May 2019].
Cleartax.in. (2019). Trial Balance - Concept, Preparation, Advantages & Purpose. [online]
Available at: https://cleartax.in/s/trial-balance [Accessed 21 May 2019].