Kung walang error, perfect talaga yung gagawin mo, but considering na maraming adjustments kahit

nakagawa ka na ng financial statements marami pa ring adjustments. It is wiser to delay the recording of
the closing entries to the books of accounts until na finalize mona talaga ‘yung financial statements mo.

At the end of each year the revenue and expense account balances are transferred to the income
summary accounts, ‘yun ‘yung sinabi ko kanina, this way all of the revenue and expense accounts will
have a zero balance at the end of the year and will start the next year, fresh with no prior activity. The
income summary account balance is then transferred to the retained earnings or capital accounts
depending on what type of entity the business is. So, magc-create tayo ng temporary closing account, ito
yung tinatawag na income summary account. Sa income summary account, doon natin ilalagay lahat ng
revenue at expenses at ang difference nung income summary account na ‘yun, ‘yun ang ilalagay natin sa
capital account. So remember, it is a temporary clearing account, hindi siya bahagi ng financial
statement, nagiging bahagi lang siya ng libro, books of accounts at the end of the accounting period for
the purpose of getting the difference between revenue and expenses yun yung purpose niya, ma
determine kung ano ang revenue or paano ang resulta ng revenue at expenses, net income ba yan or
net loss? After madetermine kung net income or net loss ‘yan, ‘yung resulta ay ilalagay sa capital
account, it is either added to or deducted from the capital account. Kung net income ‘yan it will be
added to the capital account, if it is net loss, then that will be deducted from capital account. So ang
capital account natin for sole proprietorship ay name of the owner and capital, sa partnership name of
the owners then capital, pagdating sa corporation it will be retained earnings so doon sa retained
earning account ia-add or idededuct ang resulta ng income summary. After the closing entries have
been made and all the temporary accounts have been closed, a post-closing trial balance is prepared. A
post- closing trial balance is a listing of all the accounts with balances that will carry forward to the next
accounting period. Since the income statement accounts do not have balances anymore, you can think
of this as an opening balance sheet for the next accounting period. So ‘yung, imagine in niyo nalang
‘yung balance sheet niyo ginawa nyong trial balance, ‘yun na yung post-closing trial balance, kasi lahat
na ng expense and revenue items ay tinanggal na doon sa trial balance mo so anong matitira? Asset,
liabilities and capital. Eh ano ba yung asset liabilities and capital? Edi balance sheet.

So, types of closing entry. Temporary accounts can either be closed directly to the retained earnings
account to an intermediate account called the income summary account. The income summary account
is then closed to the retained earnings account, both ways have their advantages. Closing of temporary
accounts to the income summary account leaves an audit trail or accountants to follow the total of the
income summary accounts after the old temporary accounts have been closed should be equal to the
net income for the period. Pwedeng diretso na pala, diretso na sa retained earnings or capital account.
Kaya lang ‘pag diretso na sa retained earning at capital account parang wala kang summary ng current
operations, so mas maganda kung meron ka munang income summary account para makita mo na
muna yung resulta ng operation for the current period bago mo isama doon sa retained earning account
or sa capital account.

Okay, we have this illustration, in this illustration we will close terimacor to hindi to macorals. So, we’ll
close Terimacor Drug Store again, our problem is about Terimacor Drug Store, so we will close
Terimacor’s Temporary Accounts using the Income Summary Method. There are three general closing
entries that must be made. First, closing all revenue and gain accounts. All of Terimacor’s revenue or
income accounts are debited and credited to the income summary account. Parang magulo, closing all
the revenue and gains account, all of Terimacor’s revenue or income accounts are debited—ohhh okay,
the accounts, each individual account on the revenues will be debited to make it zero kasi dati ‘yan ano
ba ang entrada natin kapag nagrerecord tayo ng revenue, debit cash or accounts receivable, credit
revenue so at the end of the period, ang revenue mo naka credit so at the closing period dapat idebit
mo ‘yon para maging zero kapag naka credit gusto mo maging zero edi idebit mo. So, we are going to
debit all the revenue accounts and anong ice credit natin? The income summary account. So the entry
will be a debit to revenue and a credit to the income summary account.

Remember that all revenue, sales, income and gain accounts are closed in the process so Terimacor’s
business has a few accounts to close. Let’s take for example, eto yung ng mga accounts ng Terimacor, so
all expense accounts are then closed to the income summary account, eto ‘yung expense ng Terimacor
so we’ll go to expense accounts, lahat ng expense ang original entry ay debit so to make it zero, we have
to credit it. So eto nga lahat ng expense nakacredit, oh, ngayon ano ang debit natin? Income summary.
So dun sa income summary meron na dalawang entrada, meron na tayong income summary account
diba, meron tayong income summary, meron tayong entrada kanina na revenue at ngayon meron
tayong entradang expenses so what will be left will be the net income or net loss. Now, kung ano ‘yung
difference nito, whether debit or credit ay icoclose natin sa retained earning account kung corporation,
capital account kung sole proprietorship and partner. Now close all the dividend or withdrawal accounts
since dividend and withdrawal accounts are not income statement accounts, they do not typically use
the income summary account, this accounts are closed directly to the retained earnings by recording a
credit to the dividend account and credit to retained earnings, dividend account ang nakacredit, debit na
yung retained earnings, kasi ung retained earnings, etong dividend nung inentrada natin debit dividends
credit cash eh part yan ng capital. Hindi siya asset, hindi siya liabilities, hindi rin siya expense pero
deduction siya sa capital.