Course Code: ACC 102

Module #8

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Lesson title: Completing the Accounting Cycle Materials:

Lesson Objective: Module #8
Be knowledgeable about reversing entries
Reference:
Fundamentals of Financial
Accounting and Reporting by
Win Ballada

Productivity Tip:

Enough sleep which is at least 8 hours a day is essential for healthy brain function. To be more
productive, be sure to wind down at the end of each day and go to bed calm. Take measures to tire
your body out and relax the mind, such as exercise or meditation. Stress is a leading cause of lack
of sleep so your primary concern should be to take care of yourself.

A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)

It is possible to commit an error in posting the adjustments and closing entries to the ledger accounts;
thus, it is necessary to test the equality of the accounts by preparing a new trial balance called post-
closing trial balance.

 The post-closing trial balance verifies that all the debits equal the credits in the trial balance.
 The trial balance contains only balance sheet items such as assets, liabilities, and ending
capital because all income and expense accounts, as well as the withdrawal account, have zero
balances.

Note that only the balance sheet accounts have balances because at this point, all the income
statement accounts have been closed. Preparing the post-closing trial balance may not be the last step
in the accounting cycle. Some entities elect to reverse certain end-to-period adjustments on the first day
of the new period.

Reversing entry
 is a journal entry which is the exact opposite of a related adjusting entry made at the end of the
period.
 a technique to simplify the recording of regular transactions in the next accounting period.
 Optional
 made for any adjusting that increased/created an asset or liability.

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 Course Code: ACC 102
Module #8

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

2) Activity 1: What I Know Chart, part 1 (3 mins)

Try answering the questions below by writing your ideas under the What I Know column. You may use
key words or phrases that you think are related to the questions. Answer the What I learned section
after reading the Concept notes

What I Know Questions: What I Learned

What is post-closing trial balance?

What is reversing entry?

What is the difference between

closing and reversing entry?

B. MAIN LESSON
1) Activity 2: Pre-Printed Content Notes (13 mins)

Illustration. To show how reversing entries can be helpful, let’s try to revisit our previous sample case of
Lara Jean Repairs and Maintenance Service.

Adjusting Entry to record Advertising Expense:

Mar. 31 Advertising Expense 3,000

Accrued Advertising 3,000
Closing Entry

Mar. 31 Income Summary 3,000

Advertising Expense 3,000
Reversing Entry

Mar. 31 Accrued Advertising 3,000

Advertising Expense 3,000

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 Course Code: ACC 102
Module #8

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Payment Entry

Apr. 10 Advertising Expense 12,000

Cash 12,000

These transactions had the following effects on advertising expense:

a. Adjusted advertising expense to accrue P3, 000 in the proper accounting period.
b. Closed the correct total advertising expense during the period, including the advertising
expense accrued up to March 31.
c. Established a credit balance of P3,000 on April 1 in advertising expense equal to the expense
recognized through the adjusting entry on March 31. The liability account Accrued
Advertising was reduced to zero balance.
d. Recorded the P12, 000 payment of twelve months advertising coverage in the usual manner.
The reversing entry has the effect of leaving the balance of P9,000 in the advertising expense
account. This P9,000 balance represented the nine months’ expense in the next accounting
period.

2) Activity 3: Skill-building Activities (with answer key) (18 mins + 2 mins checking)
Direction: Some of the adjusting entries of the CPA Company on Dec. 31, 2022 is presented below.
Prepare the reversing entries.

2022
Dec. 31 Prepaid Insurance 25,000
Insurance Expense 25,000
To record unexpired insurance at year-end.

31 Interest Receivable 17,000

Interest Income 17,000
To record accrued interest at year-end

31 Office Supplies Expense 50,000

Office Supplies 50,000
To record office supplies used during the period.

31 Depreciation Expense 125,000

Accumulated Depreciation 125,000
To record depreciation for the year.

31 Salaries Expense 35,000

Salaries Payable 35,000
To record salaries accrued at year-end.

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 Course Code: ACC 102
Module #8

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

31 Rent Revenues 80,000

Unearned Rent Revenues 80,000
To record liability of unearned rent revenue at year-end.

DATE ACCOUNT DEBIT CREDIT

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 Course Code: ACC 102
Module #8

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

3) Activity 4: What I Know Chart, part 2 (2 mins)

Accomplish What You Know NOW by referring to the third column of the Chart contained in your
Activity 1.

4) Activity 5: Check for Understanding (5 mins)

Direction: Corazon Mendoza, tax consultant, began her practice on December 31, 2022. The transactions
of the firm are presented below. Assuming all relevant adjusting journal entries are made on December 31,
2022. Prepare the corresponding reversing entries, at the start of the next period.

Dec. 1 Mendoza invested P150,000 in the firm.

2 Paid rent for December to Laguna Realty, P8,000.
2 Purchased supplies on account, P7,200
3 Acquired P75,000 of office equipment, paying P37,000 down with the balance due in 30
days.
8 Paid P7,200 on account for supplies purchased.
14 Paid assistant’s salaries for two weeks, P6,000.
20 Performed consulting services for cash, P20,000.
28 Paid assistant’s salaries for two weeks, P6,000.
30 Billed clients for December consulting services, P48,000.
31 Mendoza withdrew P12,000 from the business.

Chart of accounts:
Account Titles Code Account Titles Code
Cash (110) Accounts Payable (210)
Accounts Receivable (120) Salaries Payable (220)
Fees Receivable (130) Mendoza, Capital (310)
Supplies (140) Mendoza, Withdrawals (320)
Office Equipment (150) Income Summary (330)
Accumulated Depreciation (155) Consulting Revenues (410)
Supplies Expense (520) Rent Expense (530)
Depreciation Expense (540)

Additional information:
1. Supplies on hand at Dec. 31 amounted to P4,700.
2. Salaries of P1,800 accrued at month-end.
3. Depreciation is P800 for December.
4. Mendoza has spent 20 hours on a tax fraud case during December. When completed in January,
her work will be billed at P500 per hour. Note: The firm uses the account Fees Receivable to reflect
the amounts earned but not yet billed.

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 Course Code: ACC 102
Module #8

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

A. LESSON WRAP-UP
1) Activity 6: Thinking about Learning (5 mins)
Let’s now shade the number of this module that you have finished.

b) Think about your learning by filling up your “My Learning Tracker” below. Write your learning targets,
your scores, and learning experience for this session and deliberately plan for our next learning
session.

Date Learning Target/Topic Scores Action Plan

What module# did you do? What
What’s the date
were the learning targets? What
today?
activities did you do?
What contributed to the quality of your performance today?
What were your scores
What will you do next session to maintain your performance or
in the activities?
improve it?

FAQs
1. What type of adjustments should be reversed?
- The only types of adjusting entries that may be reversed are those that are prepared for the
following:
 accrued income,
 accrued expense,
 unearned revenue using the income method, and
 prepaid expense using the expense method.

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 Course Code: ACC 102
Module #8

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

KEY TO CORRECTION

Activity 3

2022
Jan. 1 Prepaid Expense 25,000
Prepaid Insurance 25,000

1 Interest Income 17,000

Interest Receivable 17,000

1 Salaries Payable 35,000

Salaries Expense 35,000

1 Unearned Rent Revenue 80,000

Rent Revenues 80,000

Activity 5
Reversing Entries:

Jan. 1 Salaries Payable 1,800

Salaries Expense 1,800

1 Consulting Revenues 10,000

Fees Receivable 10,000

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