FINALS REVIEWER

Financial Accounting & Reporting (Fundamentals) 1

Chapter 1: Introduction to Accounting Nature of Accounting

a process of identifying, recording, and a process with the basic purpose of providing
communicating economic information that is information about economic activities that is
useful in making economic decisions. intended to be useful in making economic
decisions.

1. Identifying
Types of information provided by accounting
o The accountant analyzes each business
transaction and identifies whether the
transaction is an “accountable event” or 1. Quantitative information - expressed in
“non-accountable event.” numbers, quantities, or units.
o This is because only “accountable events
are recorded in books of accounts. 2. Qualitative information - expressed in
o “Non-accountable events” are not recorded words or descriptive form
in the books of accounts”
3. Financial information - expressed in
o Accountable events - are those that affect
money. It is also a Quantitative Information
the assets, liabilities, income or expenses of
a business.

Accounting as Science and Art

2. Recording

▪ The accountant recognizes the “accountable 1. As Social Science - accounting is a body of

events” he has identified, this process is knowledge which has been systematically
called Journalizing gathered, classified and organized.
▪ After journalizing, the accountant then
2. As a Practical Art - Accounting requires the
classifies the effects of the events on the
use of creative skills and Judgement.
accounts. This process is called “posting.”
▪ Account - the basic storage of information in
accounting e.g., cash, land, sales and etc.
Accounting as Information System

▪ A system is one that consists of an input,

3. Communicating a process, and an output.
▪ The inputs are the accountable events,
▪ Accounting information is communicated to
the processes are recording, classifying,
the interested users through accounting
and summarizing; and the output is the
reports, the most common form of which is
accounting report that is communicated
the financial statements.
to the users.
 Bookkeeping and Accounting
Bookkeeping
o refers to the process of recording the
accounts or transactions of an entity.
o It does not require the interpretation of the
significance of the information processed.
Accounting
▪ Covers the whole process of identifying,
recording, and communicating information to
interested users.
Functions of Accounting in Business
▪ Accounting is often referred to as the
‘’language of business” because it is
fundamental to the communication of
financial information.
1. To provide external users with information
that is useful in making investment and credit
decisions
2. To provide internal users with information
that is useful in managing the business.
Users of Accounting Information
1. Internal Users - Those who are Directly
involved in managing the business.
➢ Business Owners
➢ Board of Directors
➢ Managerial Personnel
2. External Users - Those who are not Directly
involved.
➢ Existing and potential investors
➢ Lenders and Creditors
➢ Government agencies (BIR, SEC, DTI)
➢ Non-managerial employees
➢ Customers
➢ Public
Types of accounting information classified
as to users’ needs
1. General Purpose
• information designed to meet the common
needs.
• It is provided by financial accounting and is
prepared primarily for external users.
2. Specific Purpose
• Designed to meet specific needs.
• It is provided by management accounting or
other branches of accounting and is
prepared primarily for internal users.
Brief History of Accounting
• Can be traced as far back as the prehistoric
times
• As early as 8500 B.C., accounting has
already existed.
• In the Middle Ages (13th and 15th centuries),
trade flourished in places such as Florence,
Venice and Genoa. Which brough
advancement in account keeping methods
• In 1211 A.D**. one of the systems in
accounting was kept by a Florentine banker.
However, the systems in accounting was
primitive as the concept of equality for entries
was absent.
• Double entry records first came out during
1340 A.D in Genoa
Fra. Luca Pacioli
▪ In 1494, the first systematic record keeping
dealing with the “double entry recording
system” was formulated by Fra. Luca
Pacioli, a Franciscan monk and
mathematician.
▪ The concept of double entry recording is
being used to this day.
▪ He is considered as the father of modern
accounting.
Common Branches of Accounting
1. Financial accounting
▪ Focuses on General purpose financial
statements, a statement that cater to the
common needs of external users.
▪ General record keeping, i.e., maintenance of
journals and Ledgers
2. Management Accounting
▪ Involves accumulation and
communication of information for use by
internal users
▪ Preparation of Specifically tailored
management reports
▪ used in making decision for internal users.
3. Government Accounting
▪ Refers to the accounting for the government
and its instrumentalities, custody of public
funds and etc.
▪ General record-keeping and preparation of
financial reports for government and its
agencies
▪ includes preparation of budgets and
accountability reports
4. Auditing
▪ Involves the inspection of an entity’s
financial statements or business processes
to ascertain their correspondence with
established criteria
▪ expression of an opinion on the
correspondence between management
assertions and established criteria
▪ most common form of such opinion is the
INDEPENDENT AUDITORS REPORT
which is attached to audited financial
statements.
5. Tax Accounting
▪ Preparation of tax returns
▪ Providing tax advice
6. Cost Accounting
▪ Analyses of costs of products or services
▪ Highly dependent on how much the cost of
product or service will be
7. Accounting Education
▪ Refers to teaching accounting and
accounting-related subjects in an organized
learning environment.
8. Accounting Research
▪ Careful analysis of economics events and
other variables to understand their impact
on decisions.
▪ Includes broad range of topics, related to
other branches of accounting, economy and
etc.
 Forms of Business Organizations
▪ Sole Proprietorship
o Business that is owned by only one
individual.
o Registered with the Department of
Trade and Industry (DTI).
▪ Partnership
o Business that is owned by two or more
individuals who entered into a contract
to carry on the business and divide the
income among themselves.
o Formed by contractual agreement.
o Registered with the Securities and
Exchange Commissions (SEC).
▪ Corporation
o Owned by more than one individual,
and the owners are called
Stockholders or Shareholders.
o Created by operation of law rather than
a contract.
o Registered with the Securities and
Exchange Commissions (SEC).
▪ Cooperatives
o Also owned by more than one
individual
o Formed in accordance with the
provisions of The Philippine Cooperative
Coded of 2008.
o Association of individuals who joined
together to contribute capital and
cooperate in order to achieve certain
goals.
o The founding members of cooperative
shall not be less than 15 individuals
o Registered with the Cooperative
Development Authority (CDA).
Types of Business According to Activities
▪ Service Business
• Offers services as its main product
rather than physical goods.
• Directly involved in providing service to a
customer
• A service business may offer
professional skills, expertise, advise, and
etc.
• Example: Schools, Hospitals, Hotels and
Restaurants, Transportation,
Entertainment and many more.
▪ Merchandising Business (Buy and Sell)
• One that buys and sells goods without
changing its physical form
• What you Buy is what you Sell
• Example: Retailing, Grocery stores,
department stores, hardware stores,
pharmacies, online stores, sari-sari and
etc.
▪ Manufacturing Business (Produces
Goods)
• One that buys raw materials and
processes them into new or final
products.
• Example: Car Manufacturers,
Technology companies (Apple,
Samsung, etc.), Food processing (San
Miguel Pure Foods, Silver Swan, etc.)
and Factories.
• Needs a high starting capital to acquire
machineries, employment, and etc.
CHAPTER 2 - ACCOUNTING CONCEPTS
AND PRINCIPLES
Basic Accounting Concepts
▪ Accounting is constantly changing and
new concepts are continuously
emerging.
1. Separate entity concept
• Business is viewed as a separate person,
distinct from its owner
• Only the transaction of business are
recorded in the books of accounts. While
personal transaction are not recorded.
• The application of separate entity is
necessary so that the financial position
and financial performance of a business
can be measured properly.
2. Historical Cost Concept (Cost principle)
• Assets are initially recorded at their
acquisition cost.
3. Going concern assumption
• The business is assumed to continue to
exist for an indefinite period of time.
liquidating concern - The opposite of going
concern. This is the case if business intends to
end its operations.
• Liquidation is the process of *selling off
assets* to repay creditors and dissolve a
business.
4. Matching (or Association of cause and
effect)
• Some costs are initially recognized as
assets and charged as expenses only
when the related revenue is recognized.
5. Accrual Basis of Accounting
• Economic events are recorded in the
period in which they occur rather than at
the point in time when they affect cash.
• Income is recognized in the period when
it is earned rather than when it is
collected.
• Expenses are recognized in the period
when it is incurred rather than when it is
paid.
6. Prudence (Conservatism)
• If there two acceptable alternatives in a
situation, choose the alternative that will
result in lesser income or resource.
• The accountant observes some degree
of caution when exercising judgements
needed in making accounting estimates
under conditions of uncertainty.
• If the accountant needs to choose
between a potentially unfavorable
outcome versus a potentially favorable
outcome, the accountant chooses the
unfavorable one.
• This is necessary so that assets or
income are not overstated, and liabilities
or expense are not understated.
7. Time Period
• The life of business is divided into series
of reporting periods.
• a reporting period is usually 12 months
Reporting Period: 10. Cost-benefit (Cost constraint)
o The costs of processing and
▪ Calendar year period
communication information should not
exceed the benefits to be derived from
o Starts on January and ends on
the information’s use.
December 31 of the same year

▪ Fiscal year period

11. Full Disclosure principle
o Related to both Materiality and Cost-
o Also covers 12 months but starts on
Benefit
a date other than January 1
o Information communicated to users
reflect a series of judgmental trade-offs
that strive for sufficient detail to disclose
Accounting Period:
matters that make a difference to users,
▪ Interim period yet sufficient condensation to make the
information understandable, keeping in
o Can be shorter than 12 months mind the costs of preparing and using it.
o Can be a month, quarter (3 months)
or semiannual period (6 months)
12. Consistency Concept
o Requires a business to apply accounting
8. Stable monetary unit policies consistently, and present
o Assets, liabilities, equity, income, and information consistently, from one period
expenses are stated in terms of a to another.
common unit of measure, which is the
peso in the Philippines.
o Purchasing power of peso is regarded as Accounting Standards
stable
o The term “standards” is used to
o Therefore, changes in purchasing power
specifically refer to the Philippine
of peso due to inflation are ignored.
Financial Reporting Standards (PFRSs)
o Traditionally, accounting standards were
referred to as the generally accepted
9. Materiality concept
accounting principles (GAAP)
o Accounting principles are applicable only
to material items.
o Materiality is matter of professional
judgement and is based on the size and
nature of an item being judged.
 Philippine Financial Reporting Standard
(PFRSs)
o are standards and interpretations
adopted by Financial Reporting
Standards Council (FRSC)
Consists of the following:
a) Philippine Financial Reporting Standards
b) Philippine Accounting Standards
c) Interpretations
o PFRS are issued by the Financial
Reporting Standards Council, which is
the official accounting standard-setting
body in the Philippines.
o Are patterned from the International
Financial Reporting Standards (IFRSs)
which are issued by the International
Accounting Standards Board (IASB).
Standards
▪ Serves as guide when recording and
communicating accounting information.
▪ It provides a more detailed application of
concepts
Relevant regulatory bodies
1. Securities and Exchange Commission
(SEC)
o Tasked with regulating corporations and
partnerships
o Requires corporations and partnerships
to file audited financial statements
2. Bureau of Internal Revenue (BIR)
o Tasked in collecting national taxes and
administering the provisions of the Tax
Code.
3. Bangko Sentral ng Pilipinas (BSP)
o Tasked in regulating banks and other
entities performing banking functions.
o It influences the selection and application
of accounting policies by these
businesses.
4. Cooperative Development Authority (CDA)
o Tasked in regulating cooperatives
o It influences the selection and
application of accounting policies by
cooperatives.
Qualitative Characteristics of useful
financial information
Qualitative Characteristics - Traits that
determine whether an item of information is
useful to users.
1. Fundamental Qualitative Characteristics
o These are characteristics that make
information useful to users.
A. Relevance
• Information is relevant if it can affect the
decisions of users.
 a.1. Predictive Value
o Information has a predictive value if it
helps users to make predictions about
future outcomes.
a.2. Confirmatory Value
o Related to Predictive Value
o Information has a confirmatory value if it
can help users confirm their past
predictions.
a.3. Materiality
o An entity-specific aspect of relevance,
meaning it depends on the facts and
circumstances surrounding specific
entity.
B. Faithful Representation
• Represented if it is factual, meaning it
represents the actual effects of events that
have taken place.
B.1. Completeness
o All information necessary for users to
have a complete understanding of the
financial statements is provided.
B.2. Neutrality
o Information is selected or presented
without bias.
B.3. Free from Error
o There are no errors in the description
and in the process by which the
information is selected and applied.
2. Enhancing qualitative characteristics
• Supports the fundamental characteristics.
They enhance the usefulness of information.
A. Comparability
o helps users identify similarities and
difference between different sets of
information
B. Verifiability
o Verifiable is different users could reach a
general agreement as to what the
information intends to represent.
C. Timeliness
o Timely if it is available to users in time to
be able to influence their decisions.
D. Understandability
o Understandable if it is presented in a
clear and concise manner.
 Chapter 3 - Accounting Equation EQUITY

• Simply assets minus liabilities

• Other terms for equity are capital, net
The Basic Accounting Equation
assets, and net worth.
ASSETS = LIABILITIES + EQUITY

Expanded Accounting Equation
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
ASSETS
• Are the Economic resources you control
that have resulted from past events and
can provide you with economic benefits.
• Anything the business own is an Asset
INCOME
• Increases in economic benefits during
the period in the form of increases in
assets, or decreases in liabilities, that
result in increases in equity, excluding
those relating to investments by the
business owner.
EXPENSES

• Decreases in economic benefits during

LIABILITIES the period in the form of decreases in
• Are your present obligations that have assets, or increases in liabilities.
resulted from past events and can
require you to give up economic
resources when settling them.

Obligations

1. Legal Obligation - results from a

contract, legislation, or other operation of
law.

2. Constructive Obligation - results

from your past actions that have created
a valid expectation on others.
 Chapter 4 – Types of Major Accounts
Account
▪ The basic storage of information in
accounting.
1. Account Title – Describes the specific
item of A, L, E, I, E.
2. Debit side – Left
3. Credit side – Right
The Five Major Accounts
BALANCE SHEET INCOME STATEMENTS
ACCOUNTS ACCOUNTS
1. ASSETS 4. INCOME
2. LIABILITIES 5. EXPENSES
3. EQUITY
COMMON ACCOUNT TITLES
BALANCE SHEET ACCOUNTS
▪ ASSETS
• Cash
o Includes money or its equivalent that
is readily available for unrestricted
use, e.g., cash on hand and cash in
bank.
• Accounts Receivable
o Receivables supported by oral
informal promises to pay.
• Allowance for bad debts
o The aggregate amount of estimated
losses from uncollectible accounts
receivable. Another term
“Allowance for doubtful Accounts.”
• Notes Receivable
o Receivables supported by written or
formal promises to pay in the form of
promissory notes.
• Inventory
o Represents the goods that are held
for sale by a business.
• Prepaid supplies
o Represents the cost of unused office
and other supplies.
• Prepaid rent
o Rent paid in advance.
• Prepaid insurance
o Cost of insurance paid in advance.
• Land
o The lot on which the building of the
business has been constructed or a
vacant lot which is to be used as
future plant site. Land is not
depreciable.
• Building
o The structure owned by a business
for use in its operation.
• Accumulated depreciation – Building
o The total amount of depreciation
expenses recognized since the
building was acquired and made
available for use.
• Equipment
o Machineries, factory equipment,
transportation equipment, office
equipment, furniture and fixtures.
is
 • Accumulated depreciation –
equipment
o The total amount of depreciation
expenses recognized since the
equipment was acquired and made
available for use.
• Owner’s Drawings
o This account is used to record the
temporary withdrawals of the owner
during the period.
INCOME STATEMENT ACCOUNTS

▪ LIABILITIES
▪ INCOME
• Accounts Payable
• Service Fees
o Obligations supported by oral or
o Revenues earned from rendering
informal promises to pay by the
services.
debtor.

• Sales
• Notes Payable
o Revenues earned from the sale of
o Obligations supported by written or
goods.
informal promises to pay by the
debtor in the form of promissory
• Interest Income
notes.
o Revenues earned from the issuance
of interest-bearing receivables.
• Interest Payable
o Interest incurred but not yet paid.
• Gains
Interest payable arises from interest-
o Income earned from the sale of
bearing liabilities.
assets or from enhancements of
assets or decreases in liabilities that
• Salaries Payable
are not classified as revenue.
o Salaries already earned by
employees but not yet paid by the
business.
▪ EXPENSES
• Cost of sales (Cost of goods sold)
• Utilities Payable
o Represents the value of inventories
o Utilities (e.g., electricity, water,
that have been sold during the
telephone, etc.) used but yet paid.
accounting period.
• Unearned Income
• Freight-out
o Income collected in advance before
o Represents the sellers’ costs of
they are earned.
delivering goods to customers.
o Other term are “delivery expense,”
“transportation-out,” “carriage
▪ EQUITY
outwards.”
• Owner’s Capital (Owner’s equity)
o The residual amount after deducting
liabilities from assets.
• Salaries expense
o Represents the salaries earned by
employees for the services they have
rendered during the accounting
period.
• Rent expense
o Represents the rentals that have
been used during the accounting
period.
• Utilities expense
o Represents the cost of utilities that
have been used.
• Supplies expense
o Cost of supplies that have been used.
• Bad debt expense
o Amount of estimated losses from
uncollectible accounts receivable
during the accounting period.
• Depreciation expense
o The portion of the cost of depreciable
asset that has been allocated to the
current accounting period.
• Advertising expense
o Cost of promotional or marketing
activities during the period.
• Insurance expense
o Cost of insurance
• Taxes and licenses
o Cost of business and local taxes
required by the government for the
conduct of business (e.g., mayor’s
permit, other percentage taxes,
community taxes).
• Transportation expense
o The necessary and ordinary cost of
employees getting from one
workplace to another which are
reimbursable by the business.
• Travel expense
o Represent the cost incurred when
travelling on business tripes, e.g., out
of town travel cost of employees sent
to seminars.
• Interest expense
o Cost of borrowing money
• Miscellaneous expense
o Various small expenditures which do
not warrant separate presentation.
• Losses
o May arise from sale of assets and
decrease in the value of assets due
to destruction damage, obsolescence
and etc.
Chapter 5: Books of Accounts and
Double-entry System
Books of Accounts
▪ Journal - Also called the “book of original
entries,” is the accounting record where
business transactions are first recorded. This
process is called Journalizing.
Types of Journal King of Ledgers

1. Special Journal a) General Ledger – contains all the

o Used to record sales on account. accounts appearing in the trial balance

Common Examples of Special Journals

b) Subsidiary ledger - provides a
A. Sales Journal breakdown of the balances of controlling
o Used to record sales on account. accounts.

B. Purchase Journal
o Used to record purchases of Double-entry system
inventory on account.
o Under this system, each transaction
C. Cash receipts Journal is recorded in two parts – debit and
o Used to record all transactions credit.
involving receipts of cash. TYPE OF ACCOUNT NORMAL
BALANCE
D. Cash Disbursements Journal ASSET DEBIT
o Used to record all transactions LIABILITY CREDIT
involving payments of cash. EQUITY CREDIT
INCOME CREDIT
EXPENSE DEBIT

2. General Journal CONTRA AND ADJUNCT ACCOUNTS

o All other transactions that cannot be
recorded in the special journals are
recorded in the general journal.
Ledger
1. Contra accounts – presented in the
financial statements as deduction to their
related accounts.
2. Adjunct accounts – presented in the
financial statements as addition to their
related accounts.

o Is a systematic compilation of a group of

accounts. It is used to classify the effects of
business transactions on the accounts.
o Also called as the “book of secondary
entries”
o The process of recording in the ledger is
called “posting.”
 Chapter 6: Business Transactions and
their Analysis
The Accounting Cycle
o Represents the steps or procedures used
to record transactions and prepare
financial statements.
o The accounting cycle implements the
accounting processes of identifying,
recording, and communicating economic
information.
Steps in Accounting Cycle
1. Identifying and analyzing
o The accountant gathers information from
source documents and determines the
effect of the transactions on the
accounts.
2. Journalizing
o The identified accountable events are
recorded in the journals.
3. Posting
o Information from the journal are
transferred to the ledger.
4. Preparing unadjusted trial balance
o The balances of the general ledger
accounts are proved as to the equality of
debits and credits.
o Serves as the basis for adjusting entries.
5. Preparing the adjusting entries
o The accounts are updated as of the
reporting date on an accrual basis by
recording accruals, expiration of
deferrals, estimations, and other events
often not signaled by new source
documents.
6. Preparing the adjusted trial balance (or
worksheet)
o Serves as a basis for the preparation of
financial statements.
7. Preparing the financial statements
o These are the means by which the
information processed is communicated
to users.
8. Closing the books
o Involves journalizing and posting closing
entries and ruling the ledger.
o Temporary accounts (or nominal
accounts) are closed and the resulting
profit or loss is transferred to an equity
account.
9. Preparing the post-closing trial balance
o The equality of debits and credits are
again rechecked after the closing
process.
10. Recording of reversing entries
o Reversing entries are usually made at
the beginning of the next accounting
period to simplify the recording of certain
transactions in that period.
Identifying and analyzing transactions and
events
Source Documents
A. Sales Invoice – Sales of Goods
B. Official Receipts – used for rendering
of services.
C. Purchase orders – document issued by
a buyer to a seller indicating the types,
quantities and agreed prices for products
or services that the buyer intends to
purchase.
 D. Delivery Receipts – document signed
by the receiver of shipment
acknowledging the receipt of the goods.
E. Bank deposit slips – evidences a
deposit to a bank account. It shows the
date of deposit, the bank account name
and number, and the amount deposited.
F. Bank Statements – a report issued by a
bank that shows the deposits
withdrawals during the period and the
cumulative balance of a depositor’s bank
account.
G. Checks – an instrument that orders a
bank (drawee) to pay the person named
on the check or the bearer thereof
(payee) a definite amount of money from
the drawer’s bank account.
H. Statement of account, and the like – a
report a business sends to its customers
listing the transactions with the customer
during a period, the payments made by
the customer and any remaining balance
due from the customer.
Chapter 7: Posting to the Ledger
Posting
o The process of transferring data from
the journal to the appropriate accounts
in the ledger.
o Done by transferring the amounts of
debits and credits in a recorded journal
entry to the ledger accounts.
Preparing the Unadjusted Trial Balance
o Is a list of general ledger accounts and
their balances.
o It is prepared to check the quality of total
debits and total credits in the ledger.
Types of Trial Balance
a. Unadjusted trial balance
b. Adjusted Trial balance
c. Post-closing trial balance
Chapter 8: Adjusting Entries
Adjusting Entries
o Entries made prior to the preparation of
financial statements to update certain
accounts so that they reflect correct
balances as of the designated time.
Purpose of Adjusting entries
1. To take up unrecorded income and
expense of the period.
2. To split mixed accounts into their real and
nominal elements.
REAL, NOMIAL AND MIXED ACCOUNTS
1. Real Accounts (Permanent accounts)
o Accounts that are not closed at
the end of the accounting period.
o These are extended to the next
accounting period.
o Real accounts include all
Balance sheet accounts, except
the Owners drawings account.
 2. Nominal Accounts (Temporary Expenses
accounts)
o Accounts that are closed at the 1. Asset Method
end of the accounting period. o Prepayments of expenses are
o Nominal accounts include all initially debited to an asset
income statement accounts, account.
drawings account, clearing and
suspense accounts. 2. Expense Method
o Prepayments of expenses are
3. Mixed accounts initially debited to an expense
o Accounts that have both real and account.
nominal account components.
These accounts are subject to
adjustments. A business prepays one year insurance for
120,000 on October 1, 20x1.
Methods of Initial Recording of Income and Asset Method Expense Method
Expenses Oct 1, 2021 Oct 1, 2021
Income Insurance expense 120,000
Prepaid Insurance 120,000
Cash 120,000 Cash 120,000
1. Liability Method
o Advance collections of income are
initially credited to a liability account.
Asset Method Expense Method
2. Income Method Dec 31, 2021 Dec 31, 2021
o Advance collections of income are
Insurance expense 30,000 Prepaid Insurance 90,000
initially credited to a income account. Insurance Expense 90,000
Prepaid Insurance 30,000

On April 1, 20x1, the business receives one-year

rent in advance of 120,000 from one of its
tenants. Rent per month is 10,000
Chapter 9 – Accounting Cycle of Service
Liability Method Income Method
Business
April 1, 2021 April 1, 2021
Worksheet
Cash 120,000 Cash 120,000
Unearned rent 120,000 Rent Income 120,000 o Is an analytical device used to facilitate
the gathering of data for adjustments,
the preparation of financial statements,
Liability Method Income Method and closing entries.
Dec 31, 2021 Dec 31, 2021

Unearned rent 90,000 Rent Income 30,000

Rent Income 90,000 Unearned Rent 30,000
Financial statements

o The end product of the accounting

process.
o Information from the journal and the
ledger are meaningless to most users
unless they are summarized and
communicated through the financial
statements.

Major Processes in Accounting

▪ Journalizing – Recording
▪ Posting – Classifying
▪ Financial Statements – Summarizing and
communicating

Closing entries

o Entries prepared at the end of the

accounting period to “zero out” all
nominal accounts in the ledger.
o Also referred as “closing the books”