Commercial Subjects Group

Level 3

Accounting (3) –
Subject
806 - 321 ‫محا‬

Unit Unit 1

Closing Process of Temporary Accounts

Title For services Business

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Accounting 3 Closing Process for Temporary Accounts Acc. 213

Learning Objectives

:By the end of this lesson, the student should be able to

1- define the permanent and temporary accounts.

2- explain the purpose of preparing the closing entries of
temporary accounts for services business .

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Accounting 3 Closing Process for Temporary Accounts Acc. 213

Define the permanent and temporary accounts

te d to o n e a c c o u n tin g period.
a c c o u n ts a c c u m u la ted data rela
al)
Temporary (or nomin w a ls a c c ou n t, a n d th e Income
e s ta te m e n t a c c o u n ts, the withdra
They include all incom u n ts a re o p e n e d a t th e beginning
e y a re te m p o ra ry b e c ause the acco
Summary account. Th th a t p e rio d , a n d th e n closed at the
re c o rd tr a n s ac tio n s and events for
of a period, used to n ly to te m p o ra ry a ccounts.
s in g process applie s o
e p e ri o d. T h e c lo
end of th

n a ctiv it ie s re la te d to one or m
n t (o r re a l) a cc o un ts report o the ne
Permane c arry the ir e n d in g b a la nc e s into
un tin g p e rio d s . T he y e are
future acco a ll balance s h e e t a c c o u n ts. T h es
en era lly c o n s is t o f
period and g o u nts , wh ic h a re n o t closed
quity a c c
assets, liabilities and e

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Accounting 3 Closing Process for Temporary Accounts Acc. 213

Difference between permanent and temporary accounts.

A. Closing Process for Service Business

Revenues Assets

Owner's Capital
Withdrawals
Expenses

Liabilities
Temporary Permanent
Accounts Accounts

The closing process applies only to temporary account accounts

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Accounting 3 Closing Process for Temporary Accounts Acc. 213

Explain the purpose of preparing the closing entries

for temporary accounts.

1. It resets revenue, expense, and withdrawals account balances to zero at the

end of each period. So these accounts can properly measure income and
withdrawals for the next period.
2. It helps in summarizing a period’s revenues and expenses.
3. It updates the balance of capital account for changes in owner’s equity
occurring during the accounting period

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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

.Objective 2: Prepare closing entries for temporary accounts

• Steps of closing entries:

1. Closing Revenues: (Revenues are credit, when close it should be debit)

Date Explanation DR. CR.

xx Revenues xx
Income Summary xx

2. Closing Expenses: (Expenses are debit, when close it should be credit)

Date Explanation DR. CR.

xx Income Summary xx
Expenses xx

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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

.Objective 2: Prepare closing entries for temporary accounts

Steps of closing entries

3.Closing Net Income: 3.Close Income summary:

( First find Total Revenue – Total Expenses) ( First find Total Revenue – Total Expenses)
If Total Revenue > Total Expenses (Net Income) If Total Revenue < Total Expenses (Net Loss)

Date Explanation DR. CR. Date Explanation DR. CR.

xx Income summary xx xx Capital xx
Capital xx Income summary xx

4. Closing Drawing:
We should be take the
Date Explanation DR. CR. amount of drawing
from the question
xx Capital xx
Drawing xx

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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

Example (1):
The ledger of Mahmoud’s Company on December 31, 2020 includes the following accounts with normal
balances on December 31, 2020: Mahmoud, Capital BD12,000; Drawings BD500; Services Revenues
BD8,000; Wage Expenses BD1,300; Supplies Expenses BD1,700; and Rent Expenses BD2,000.
Required:
Prepare the necessary closing entries from the available information on December 31, 2020.
Debit Credit
Date Explanation PR
(BD) (BD)

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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

Example (1): Solution

The ledger of Mahmoud’s Company on December 31, 2020 includes the following accounts with normal
balances on December 31, 2020: Mahmoud, Capital BD12,000; Drawings BD500; Services Revenues BD8,000;
Wage Expenses BD1,300; Supplies Expenses BD1,700; and Rent Expenses BD2,000.
Required:
Prepare the necessary closing entries from the available information on December 31, 2020.
CLOSING ENTRIES
Debit Credit
Date Explanation PR
(BD) (BD)
Dec 31 Services Revenues 8,000
2020 Income Summary 8,000
Income Summary 5,000
Dec 31 Wage Expenses 1,300
2020
Supplies Expenses 1,700
Rent Expenses 2,000
Dec 31 Income Summary (Net Income) 3,000
2020 Capital 3,000
Dec 31 Capital 500
2020 Drawings 500
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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

.Objective 2: Prepare closing entries for temporary accounts

.Example (2);The following trial balance for Fawaz Trading Est

CLOSING ENTRIES
.Cr .Dr Explanation Date

Required:
Prepare the necessary closing entries on Dec 31, 2011.

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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

.Objective 2: Prepare closing entries for temporary accounts

Solution
.Example (2);The following trial balance for Fawaz Trading Est CLOSING ENTRIES
.Cr .Dr Explanation Date
7850 Revenue
300 Consulting revenue
Rental Revenue +
8150 Income summary

4365 Income summary - Dec

31
Expenses
375 .Depreciation Exp 2011
1610 .Salaries Exp
100 .Insurance Exp
1000
1050
230
.Rent Exp
.Supplies Exp +
.Utilities Exp

Income summary (Net Profit)

=
3785
3785 Capital
600 Fawaz, Capital
Required: 600 Fawaz, Withdrawal
Prepare the necessary closing entries on Dec 31, 2011.

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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

Activity (1)
.The following a partial of trial balance for Jamal Company CLOSING ENTRIES
Jamal Company
Trial Balance
Date Explanation Dr. Cr.
As at June 30, 2018
Name of Account Debit (BD) Credit (BD)
Cash 28,000
Account Receivable 5830
Equipment 2500
Unearned Service Revenue 650
Account Payable 250
Jamal, Capital 35,000
Jamal, Drawing 700
Fees Earned 1500
Rent Revenue 3200
Salaries Expense 1000
Utilities Expense 200

Required:
Prepare the necessary closing entries on June 30, 2018

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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

Activity (1) : Solution

.The following a partial of trial balance for Jamal Company
CLOSING ENTRIES
Jamal Company
Trial Balance Date Explanation Dr. Cr.
As at June 30, 2018
Fees Earned 1,500
Name of Account Debit (BD) Credit (BD) Rent Revenue 3,200
Cash 28,000 Income Summary 4,700
Account Receivable 5,830
Equipment 2,500
Income Summary 1,200
Unearned Service Revenue 650
Utilities Expense 200
Account Payable 250
Salaries Expense 1,000
Jamal, Capital 35,000 June
30
Jamal, Drawing 700
,2018 Income Summary 3,500
Fees Earned 1,500
Capital 3,500
Rent Revenue 3,200
Salaries Expense 1,000
Utilities Expense 200 Capital 700
Drawing 700
Required:
Prepare the necessary closing entries on June 30, 2018
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Accounting 3 Closing Entries for Temporary Accounts Acc. 213

End of Lesson
The student should be achieved the objectives:

1- define the permanent and temporary accounts.

2- explain the purpose of preparing the closing entries of
temporary accounts for services business .

‫لمزيد من المعلومات‬:

www.Edunet.com1- ‫زيارة البوابة التعليمية‬

2- ‫حل أسئلة وأنشطة الكتاب المدرسي‬.

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