Unit 6
Illustration of Closing Journal Entries, Post-Closing Trial Balance and Reversing Journal Entries
Magandang Buhay Travel Agency
Adjusted Trial Balance
Dec. 31, 2024
ACCOUNT TITLE DEBIT CREDIT
Cash P 126,000
Accounts Receivable 645,000
Prepaid Rent 240,000
Office Supplies 27,000
Furniture 2,175,000
Accumulated Depreciation P 510,000
Notes Payable 900,000
Accounts Payable 285,000
Salaries Payable 105,000
Interest Payable 54,000
Buhay, Capital 1,680,000
Buhay, Withdrawals 1,200,000
Travel Revenues 5,133,000
Salaries Expense 3,876,000
Rent Expense 120,000
Office Supplies Expense 36,000
Depreciation Expense 75,000
Interest Expense 54,000
Miscellaneous Expense 93,000 ____________
TOTAL P 8,667,000 P 8,667,000
Adjusting Entries:
a. Rent Expense 120,000 Deferral - Asset Method
Prepaid Rent 120,000 No reversing entry required.
b. Office Supplies Expense 36,000 Deferral - Asset Method
Office Supplies 36,000 No reversing entry required.
c. Depreciation Expense 75,000 Deferral - Asset Method
Accumulated Depreciation 75,000 No reversing entry required.
d. Salaries Expense 105,000 Accrual
Salaries Payable 105,000 To be reversed.
e. Interest Expense 54,000 Accrual
Interest Payable 54,000 To be reversed.
REQUIRED:
1. Prepare the closing journal entries.
2. Prepare the post-closing trial balance.
3. Prepare the reversing entries.
Dec. 31, 2024 – Closing Journal Entries
Step 1: Close revenue account to income & expense summary account.
a. Travel Revenues 5,133,000
Income & Expense Summary 5,133,000
To close revenue account to income & expense summary account.
Step 2: Close expense accounts to income & expense summary account.
b. Income & Expense Summary 4,254,000
Salaries Expense 3,876,000
Rent Expense 120,000
Office Supplies Expense 36,000
Depreciation Expense 75,000
Interest Expense 54,000
Miscellaneous Expense 3,000
To close expense accounts to income & expense summary account.
Step 3: Close the income & expense summary account to the capital account.
c. Income & Expense Summary 879,000
Buhay, Capital 879,000
To close the income & expense summary account to the capital account.
Step 4: Close the drawing/withdrawal account to the capital account.
d. Buhay, Capital 1,200,000
Buhay, Withdrawals 1,200,000
To close the withdrawal account to the capital account.
Income Summary
12/31-CE(b) 4,254,000 5,133,000 12/31-CE(a)
12/31-CE(c) 879,000 879,000 Balance
0
Buhay, Capital
12/31-CE (d) 1,200,000 1,680,000 12/31-(ATB)
_________ 879,000 12/31-CE(c)
1,200,000 2,559,000
1,359,000 12/31 -Balance
NOTE: To close means to zero out the balance of the account. It is prepared at the end of the accounting
period.
a. If the balance of the account is on the debit side, it should be credited when closing.
b. If the balance of the account is on the credit side, it should be debited when closing.
Post-Closing Trial Balance
Magandang Buhay Travel Agency
Post-Closing Trial Balance
Dec. 31, 2024
ACCOUNT TITLE DEBIT CREDIT
Cash P 126,000
Accounts Receivable 645,000
Prepaid Rent 240,000
Office Supplies 27,000
Furniture 2,175,000
Accumulated Depreciation P 510,000
Notes Payable 900,000
Accounts Payable 285,000
Salaries Payable 105,000
Interest Payable 54,000
Buhay, Capital 1,359,000
TOTAL P 3,213,000 P 3,213,000
NOTE: The last account title found in the Post-Closing Trial Balance is the capital account. The balance of
the capital account is the balance presented in the T-account and as shown also in the Statement of
Changes in Equity.
January 1,2025 – Reversing Journal Entries
Based on the above adjusting journal entries:
a. NO adjusting entry required. - The deferral adjusting entry uses ASSET method.
b. NO adjusting entry required. - The deferral adjusting entry uses ASSET method.
c. NO adjusting entry required. - The deferral adjusting entry uses ASSET method.
d. Salaries Payable 105,000
Salaries Expense 105,000 - Accrual adjusting entry, to be reversed.
e. Interest Payable 54,000
Interest Expense 54,000 - Accrual adjusting entry, to be reversed.
Note: REVERSING JOURNAL ENTRIES
- are made at the beginning of the next/new accounting period to enable a smoother
accounting process.
- This step is optional and its purpose is to cancel out certain adjusting entries that were
recorded in the previous accounting period.
- To reverse is to do the exact opposite of the adjusting entry if it is to be reversed.
Adjusting journal entries that needs to be reversed are:
1. ALL ACCRUAL adjusting entries.
2. DEFERRAL adjusting journal entries that uses the INCOME and EXPENSE methods.
