MODULE 6

FINANCIAL STATEMENTS,

CLOSING ENTRIES, POST-CLOSING TRIAL BALANCE

INTRODUCTION

A. OVERVIEW

This is the final module for service business. In module 5, we have discussed
the purpose of the worksheet, which is to make easier the preparation of financial
statements. In this module, financial statements will be prepared from the data in a 10-
column worksheet. But before this, some accounting principles relevant to preparation
of financial statements will be discussed. Also, the basic financial statements will be
identified and their purpose/s will be taken up. Illustrations will follow after the
discussion. Study of closing entries and post-closing trial balance is also included in
this module. For further understanding of the topic, exercises are given and have to be
answered.

B. LEARNING OUTCOMES

At the end of the lesson, you should be able to:

1. Learn the accounting principles relevant to the preparation of financial

statements
2. Identify the basic financial statements and their purposes
3. Prepare the basic financial statements from a 10-column worksheet
4. Prepare closing entries
5. Prepare a post- closing trial balance

C. REQUIREMENTS

After reading and studying the lessons, please answer the

questions/exercises at the end of the lesson.

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 D. INSTRUCTION

Study and understand the lessons in this module. Then answer the
questions/exercises given as your application/practice of what you have learned
from the lessons. Then prepare for a discussion on the scheduled date.

a. PRE-ASSESSMENT

Problem-solving/Exercises

E. CONTENTS
A. LESSON
1. In addition to the accounting principles mentioned in the previous module, the
following principles are relevant in the preparation of financial statements:
1.1. Exchange Price or Cost Principle
Based on this principle, assets, liabilities, revenue, and expense
are recorded at cost or the amount agreed upon during the
exchange transaction. It may be cash or cash equivalent.
1.2. Accrual Basis of Accounting
Based on this assumption, assets, liabilities, revenue, and
expense are recognized based on the occurrence of the
transaction rather than based on cash received or paid. So that,
income is recorded when it is earned rather than when it is
collected and expense is recognized when it is incurred rather
than when it is paid.
1.3. Objectivity
Objectivity concept requires that assets must be substantiated by
documents such as invoices or official receipt.
1.4. Conservation or Prudence
Under conditions of uncertainty, the accountant needs to choose
between unfavorable outcome or favorable outcome. The
accountant has to choose the unfavorable one. This is to avoid
overstatement of assets and income; and understatement of
liabilities and expenses.

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 1.5. Consistency Concept
Under this concept, accounting policies must be applied
consistently and accounting information must be presented
consistently from one period to another.

2. Financial Statements. Information from the following financial statements are important to
the stakeholders:
2.1. Income Statement. It contains the income and expenses of the
business and shows the result of the business operation.
2.2. Statement of Financial Position. It contains the assets, liabilities
and capital of the business and shows the financial condition of
the firm.
2.3. Statement of Owners’ Equity. It shows the activities that caused
the changes in the equity of the owner.
2.4. Statement of Cash Flows. It shows the cash received and cash
disbursed by the business.

Income Statement

The Income Statement has two forms, the single-step form and the multiple-step
form. The single-step form has a list of expenses deducted from a list of revenues to
arrive at the result of operation, which is either a profit or loss. The single-step form is
commonly used by a service concern. The multiple-step form will be discussed in the
merchandising concern.

Single-step Form Income Statement

SURE REPAIR SHOP

Income Statement
For the Period Ended Dec 31, 20___

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T

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Statement of Owner’s Equity- Illustration

Sure Repair Shop

Statement of Owner’s Equity
December 31, 20__
F. G.Alajar, capital beginning Php 202 000
Deduct: Withdrawal 7500
Net Capital Php 194 500
Add: Net Income 48050
Total Capital Php 242 550

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B. ADDITIONAL READINGS

1. Fundamentals of Accounting by Amelia M. Arganda

2. Conceptual Framework and Accounting Standards by Zeus Millan
3. Financial Accounting and Reporting For Services and Merchandisers by
Zenaida Manuel
4. Fundamentals of Accountancy, Business and Management by Rodiel C.
Ferrer

C. EXERCISES

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Requirements:

1. Adjusting Entries
2. 10-column Worksheet
3. Income Statement
4. Statement of Financial Position
5. Statement of Owners’ Equity
6. Closing Entries
7. Post-closing Trial Balance

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