The closing transfers using the General Ledger accounts and General Journal entries
GRADE 10
80
WEEK 23 - Lesson 2 of 4
FINAL ACCOUNTS
WORKSHEET 3
CLOSING TRANSFERS
TRIAL BALANCE
When preparing a Trial balance, the business ensures that the double entry system has been
adhered to – for every debit entry, there is a credit entry for the same amount.
The business has to determine the profit/loss at the end of the financial year.
TWO new Final Accounts are therefore opened:
FINAL ACCOUNTS
Trading account
(to determine the gross
profit
Profit and loss account
(to determine the net
profit)
There are two sections in the Trial balance
1 Balance sheet accounts section
(Capital, assets and liabilities accounts)
The balances of these accounts are being carried forward as opening balances in the
next financial year.
2
Nominal accounts section
(income and expense accounts)
The profit for the year is determined by these accounts.
The balances of these income and expense accounts cannot be carried forward to
the next financial year and therefore they have to be CLOSED OFF at the end of the
financial year to determine the profit.
This process is called CLOSING TRANSFERS.
Closing transfers are done in the General Journal
80 Accounting Grade 10
1
10 STEPS FOR CLOSING TRANSFERS
1
Account closed off
Account debited
Close off Debtors Allowances to Sales account Sales
(this amount is now the Net Sales amount)
Account credited
Debtors allowances
2
Close off Sales to Trading Account
Sales
Trading account
3
Close off Cost of Sales to Trading Account
Trading account
Cost of sales
4
Calculate the Gross Profit in the Trading account
5
Trading account
Trading account
Profit and loss acc
6
[Transfer the difference of the Trading account to Profit and Loss account ]
(gross profit)
Close off Income accounts to credit side of
Income accounts
Profit and loss acc
Profit and Loss Account
7
Close off the expense accounts to the debit
side of the Profit and Loss account
Profit and loss acc
8
Calculate the Net Profit in the Profit and Loss Account
9
Close off the Net Profit to the Capital Account
Profit and loss acc
Expense accounts
Capital account
[Transfer the difference of the Profit and loss]
(net profit)
10 Transfer the Drawings account to the Capital
Capital account
Drawings
Account
Now a POST-CLOSING TRIAL BALANCE is prepared
(to check if the closing transfers were accurate)
The POST-CLOSING TRIAL BALANACE consists only of Balance Sheet accounts
All the nominal accounts have been closed off
FORMAT OF FINAL ACCOUNTS
TRADING ACCOUNT
Cost of sales
Profit and loss
220 000
(gross profit)
320 000
540 000
(balance of the account)
Sales
540 000
540 000
PROFIT AND LOSS
Expense accounts
Capital
260 000
(net profit)
130 000
410 000
(balance of the account)
80 Accounting Grade 10
Trading account
Income accounts
320 000
90 000
410 000
2
EXAMPLE 1
EXAMPLE OF CLOSING TRANSFERS
GENERAL LEDGER OF ZIZI TRADERS
Balance sheet accounts section
CAPITAL
Drawings
Balance
Balance
Profit and loss
(10) 15 000
c/d
?? 515 000
530 000
Balance
b/d
400 000
(9) 130 000
530 000
515 000
b/d
DRAWINGS
Balance
b/d
15 000
Capital
15 000
Nominal accounts section
SALES
Debtors allowance
Trading account
??
10 000
540 000
550 000
Balance
b/d
550 000
550 000
DEBTORS ALLOWANCES
Balance
b/d
Balance
b/d
10 000
Sales
(1)
Trading account
(3) 220 000
10 000
COST OF SALES
220 000
RENT INCOME
Profit and Loss
90 000
90 000
Total
b/f
90 000
90 000
SALARIES
Total
b/f
Total
b/f
260 000
260 000
Profit and Loss
260 000
260 000
WATER AND ELECTRICITY
30 000
30 000
Profit and Loss
30 000
30 000
FINAL ACCOUNTS
TRADING ACCOUNT
Cost of sales
Profit and loss
(gross profit)
220 000
Sales
(2)
540 000
(4)?? 320 000
540 000
540 000
PROFIT AND LOSS
Salaries
Water and electricity
Capital (net profit)
(7)
260 000
30 000
(5) 320 000
(6) 90 000
(8)??130 000
410 000
80 Accounting Grade 10
Trading account
Rent income
410 000
3
GENERAL JOURNAL OF ZII TRADERS
1
2
3
5
6
7
9
10
Sales
Debtors Allowances
Closing transfer
Debit
10 000
10 000
Sales
Trading account
Closing transfer
540 000
Trading account
Cost of sales
Closing transfer
220 000
Trading account
Profit and Loss account
Closing transfer
320 000
Rent income
Profit and Loss account
Closing transfer
90 000
Profit and Loss account
Salaries
Water and electricity
Closing transfer
290 000
Profit and Loss
Capital
Closing transfer
130 000
Capital
15 000
Drawings
Closing transfer
80 Accounting Grade 10
Credit
540 000
220 000
320 000
90 000
260 000
30 000
130 000
15 000
4
WORKSHEET 4
ACTIVITY 4
REQUIRED
Use the information given in the Trial Balance and the adjustments to prepare the following
for Jay-Jay Traders on 28 February 2012:
1 Journalise the year-end adjustments
2 Show the Trading Stock account in the General Ledger.
3 Prepare a Post-Adjustment Trial Balance
INFORMATION
PRE-ADJUSTMENT TRIAL BALANCE F JAY-JAY TRADERS ON
28 FEBRUARY 2012
Debit
Credit
Balance sheet accounts section
Capital
500 000
Drawings
150 000
Vehicles
350 000
Equipment
75 000
Fixed Deposit: ZZ Bank
50 000
Loan: WW Bank
20 000
Trading stock
88 500
Debtors control
52 500
Creditors control
51 069
Bank
48 960
Cash float
2 500
Petty cash
1 000
Nominal accounts section
Sales
Cost of sales
Debtors allowances
Bad debts
Commission income
Discount received
Insurance
Interest on fixed deposit
Packing material
Rent expense
Rent income
Stationery
Wages
80 Accounting Grade 10
952 500
619 980
22 530
4 000
16 500
1 800
11 200
5 000
25 000
65 000
18 000
8 619
88 000
1 613 829
1 613 829
5
ADJUSTMENTS
1 A cheque for R500 received on 28 February 2012 from a debtor whose account had
previously been written off as bad had not been entered in the books.
2 Insurance includes a premium of R3 600 paid on 30 June each year.
3 Part of the premises is being rented out at R2 000 per month.
4 Write off an additional R2 500 as irrecoverable.
5 It was found that a credit note issued to S Smit for R1 200 had been entered in the
subsidiary journal as R2 100. The business uses a mark-up of 50% on cost.
Correct the error.
6 A physical stocktaking on 28 February 2012 showed the following on hand:
Trading stock R87 000
Packing material R1 500
ANSWER
GENERAL JOURNAL OF JAY-JAY TRADERS
Debit
80 Accounting Grade 10
Credit
6
GENERAL LEDGER OF JAY-JAY TRADERS
TRADING STOCK
POST-CLOSING TRIAL BALANCE ON 28 FEBRUARY 2012
80 Accounting Grade 10
7
ANSWERS
WEEK 23 (Lesson 2 of 4)
80
ACTIVITY 4
GENERAL JOURNAL OF JAY-JAY TRADERS
Debit
1
Entry in the CRJ
2
Prepaid expense
Insurance
Paid insurance in advance
1200
Accrued income
Rent income
Rent not yet received
6 000
Bad debt
Debtors control
Write off debt as irrecoverable
2 500
3
4
5
6
1200
6 000
2 500
Debtors control
Debtors allowances
Correct error
900
Cost of sales
Trading stock
Correct error
600
Trading stock deficit
Trading stock
Trading stock deficit
900
Consumable stores on hand
Packing material
Packing material on hand
80 Accounting Grade 10
Credit
900
600
900
1 500
1 500
8
GENERAL LEDGER OF JAY-JAY TRADERS
TRADING STOCK
Mar 1
Balance
b/d
88 500 Feb
28 Cost of sales
Trading stock deficit
Balance
c/d
88 500
Mar 1
Balance
c/d
600
900
87 000
88 500
87 000
POST-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2012
Debit
Balance sheet accounts section
Capital
Drawings
Vehicles
Equipment
Fixed Deposit: ZZ Bank
Loan: WW Bank
Trading stock
Debtors control
Creditors control
Bank
Cash float
Petty cash
Prepaid expense
Accrued income
Nominal accounts section
Sales
Cost of sales
Debtors allowances
Bad debts
Commission income
Discount received
Insurance
Interest on fixed deposit
Packing material
Rent expense
Rent income
Stationery
Bad debt recovered
Trading stock deficit
Consumable stores on hand
Wages
80 Accounting Grade 10
Credit
500 000
150 000
350 000
75 000
50 000
20 000
87 000
50 900
51 069
48 460
2 500
1 000
1 200
6 000
952 500
620 580
21 630
6 500
16 500
1 800
10 000
5 000
23 500
65 000
24 000
8 619
500
900
1 500
88 000
1 618 829
1 618 829
9