Let’s Analyze

Activity 1:

Reversing Entries:
2021 Dr. Cr.
Jan.1 Insurance Expense 25,000
Prepaid Insurance 25,000

Jan.1 Interest Income 17,000

Interest Receivable 17,000

Jan.1 Salaries Payable 35,000

Salaries Expense 35,000

Jan.1 Unearned Rent Revenues 80,000

Rent Revenues 80,000

In a Nutshell:

2. Before starting the accounting process, it is important to first define what a

business transaction is. Business transactions are quantifiable events that have an
impact on a company's financial situation.
3. Shutting the books is another term for the process of closing the temporary
accounts. Accountants can close a book on a monthly or yearly basis. If the
accounts are not properly terminated, the starting balances for the following
period may be inaccurate.
4. A reversing entry's only function is to cancel out a specific adjusting entry made
at the conclusion of the previous period; however, they are optional and not used by
every firm. The entries almost always reverse accumulated income or costs from the
preceding period.
5. Whenever we conduct a post-closing trial balance, ensure that all of your
adjusting journal entries have been completed.
6. Income and costs are sent to a brief clearing account, which is generally called
Income Summary. The Income Summary section is then restricted to the capital
account. Following that, withdrawal or dividend accounts are closed to the capital
account as well.
7. In order to construct reversing entries, the adjusting entries created at the end of
the previous accounting period are simply reversed, thus the term "reversing
entries."
8. It's important to remember that closing entries are only created for temporary
accounts. Accounts which are permanent are never closed.
9. We can conclude that closing entries is like reconciling the accounts. For in
preparation for the new accounting period, accountants complete closing entries to
return the revenue, cost, and drawing temporary account balances to zero.
10. Closing temporary accounts is a crucial stage in the accounting cycle, and the
post-closing trial balance ensures that the procedure was performed correctly.