Fundamentals of Accountancy, Business and Management 1

Module 4 || Week 13 || Lesson 9: Accounting Cycle of a Service Concern

(Steps 7 to 10)

Topics (Coverage) Week Lesson 3: Accounting Cycle of a Service Concern

13- Step 7 – Financial Statements
14 Step 8 – Closing Entries
Step 9 – Post Closing Trial Balance
Step 10 – Reversing Entries

Target Participants Grade 11 ABM Students (Competence, Family Spirit, Integrity and Simplicity)

Means for Learner Facebook Messenger: Jade Vincent David

Support Email: [email protected]
Zoom, Google Meet
Call or Text thru mobile phone (+639657830392)

MODULE LEARNING OBJECTIVES

At the end of this lesson, the learners will be able to;

1. Define the 7 to 10 Steps in the accounting cycle;
2. Apply the 7 to 10 Steps in accounting cycle; and
3. Prepare the accounting cycle steps.

Let’s acquire new knowledge

STEP 7 – FINANCIAL STATEMENTS

The Financial Statements are the end product of the accounting process. Information from the journal
and the ledger are meaningless to most users unless they are summarized and communicated
through the financial statements.

The complete financial statements are discussed in Part 2 of this book. In this module, we will be only
preparing the following statements:

1. Statement of Financial Position (or Balance Sheet) – shows the information on assets,
liabilities and equity.

2. Statement of Profit and Loss (or Income Statement) – it shows information on income
and expenses, and consequently, the profit or loss for the period.

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 Fundamentals of Accountancy, Business and Management 1
Module 4 || Week 13 || Lesson 9: Accounting Cycle of a Service Concern
(Steps 7 to 10)

Sample Financial Statements:

STEP 8 – CLOSING ENTRIES

The closing entries are prepared at the end of the accounting period to “zero out’ all nominal
accounts in the ledger. This done so that the transactions during the period will not commingle with the
transactions in the next period.

The preparation of closing entries is also referred to as “closing the books”. This is an application
of the time period concept.

Closing entries are prepared as follows:

1. All income are debited and all expenses are credited. The resulting balance is recorded in a
clearing account called the “Income Summary”.

2. The balance of “Income Summary” is closed to the “Owner’s Capital” account.

3. Any balance in the “Owner’s Drawings” account is closed to “Owner’s Capital” account.

Samples:

Closing Entry
#1: Service Revenue 100,000 Income Summary
Rent Expense 20,000
Supplies expense 10,000
Depreciation Expense 30,000
Income Summary 40,000 (Squeeze)
to close income and expense accounts to income summary

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 Fundamentals of Accountancy, Business and Management 1
Module 4 || Week 13 || Lesson 9: Accounting Cycle of a Service Concern
(Steps 7 to 10)

Closing Entry #2: Income

Income Summary 40,000 (Based on #1) Summary Closed to Equity
Owner's Equity 40,000
to close the income summary to owner's equity account

Closing Entry #3:

Owner's Equity 25,000 Drawing account to Equity
Owner's Drawing 25,000
to close the income summary to owner's equity account

STEP 9 – POST-CLOSING TRIAL BALANCE

The column in the “worksheet” can be extended by adding columns for the following:

1. Closing entries – the debits and credits in the closing entries are placed. See example below.

2. Post-Closing Trial Balance – the amounts in the “adjusted trial balance” (or the Income
Statement and Balance Sheet columns) are cross-footed with the amounts in the closing entries columns.
The resulting amounts are then placed in the Post-closing Trial Balance.

Illustrative example: Worksheet

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 Fundamentals of Accountancy, Business and Management 1
Module 4 || Week 13 || Lesson 9: Accounting Cycle of a Service Concern
(Steps 7 to 10)

STEP 10 – REVERSING ENTRIES

A reversing entry is a journal entry made in an accounting period, which reverses selected
entries made in the immediately preceding period. The reversing entry typically occurs at the
beginning of an accounting period. It is commonly used in situations when either revenue or
expenses were accrued in the preceding period, and the accountant does not want the accruals to
remain in the accounting system for another period.

Reversing entries are optional accounting procedures which may sometimes prove useful in
simplifying record keeping. A reversing entry is a journal entry to “undo” an adjusting entry

Let’s have an application!

PROBLEM: UNADJUSTED TRIAL BALNCE PREPARATION.

March 1Mr. Severo Santos opens a current account with Allied Banking Corporation in the
amount of P850,000 to start with his Laundry Business under the trade name “Tagum Laundry
Services”

March 2 Purchased laundry supplies on account, from the following suppliers:

Gmall – P35,000;

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 Fundamentals of Accountancy, Business and Management 1
Module 4 || Week 13 || Lesson 9: Accounting Cycle of a Service Concern
(Steps 7 to 10)
Citimall – P25,000
Nccc Mall – P30,000.

March 3 Purchased laundry machine for cash, P150,000.

March 4 Rendered laundry service on account, P80,000.
March 10 Paid taxes and licenses due to the government, P4,000.
March 12 Mr. Severo Santos withdrew P10,000 cash from the business for his personal use.
March 17 The business borrowed money from Allied Bank Corporation, P100,000 by
issuing a 15-day note. It was deposited to the account of Tagum Laundry
Services by way of a Credit Advice issued by the Bank.
March 17 Bank issued a debit memo, P1,000 for interest and bank charges.
March 21 Cash received of P45,000 representing collection from the clients.
March 25 Partial payment of accounts, P60,000.
March 30 Mr. Severo hired an accountant for his business as he has plenty of things to
attain to at P10,000 per month effective April 1.
March 30 Paid the following expenses: Rental – P5,000; Light and water – P12,000 and
Salaries – P10,000.

Requirements: a. Prepare Complete Accounting Cycle (Steps 1-9) using Journal – for entries and
Worksheet.

*please watch videos for your references.

References

BOOKS

Rodiel C. Ferrer, Zeus Vernon B. Millan. Fundamentals of Accountancy, Business and

Management 1. Baguio City: Bandolin Enterprise.

Ong, Flocer Lao. 2016. Fundamentals of Accountancy, Business, and Management 1.

Quezon City: C&E Publishing, Inc.

Skousen, K. Fred, Earl Stice, and James Stice. 2000. Intermediate Accounting. 14th ed. Vol. 1.
Singapore: Thomson Learning Asia.

OTHERS

DepEd Curriculum Guide

- Fundamentals of Accountancy, Business and Management 1

DepEd Teachers Guide

-Fundamentals of Accountancy, Business and Management 1

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 Fundamentals of Accountancy, Business and Management 1
Module 4 || Week 13 || Lesson 9: Accounting Cycle of a Service Concern
(Steps 7 to 10)

TIMELINE

Let’s be mindful of your deadline.

Activity Name of Activity Date of submission

Number

Activity 2 Assessment On or before June 11, 2021

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