Month-End Close Practice Set

Most bookkeeping practice drills one skill at a time. A month-end close asks you to do them in sequence, for one business, where each step depends on the one before. This practice set follows a single company through a single month, from recording a transaction to the closing entries. This page explains what happens at each step, walks through the whole month with real numbers, and lists the mistakes that tend to carry from one step into the next.

What "closing the month" means

A small business records transactions every day: sales, collections, bills, payroll. At the end of each month the bookkeeper stops, makes sure the records are complete and in balance, records what the day-to-day entries missed, prepares the financial statements, and resets the temporary accounts for the next period. That routine is the month-end close. In order:

1. Record the month's transactions in the journal (see journal entry practice problems).
2. Post them to the ledger and prepare the unadjusted trial balance (see trial balance practice).
3. Record the adjusting entries for amounts earned or used up without a transaction (see adjusting entries practice).
4. Prepare the adjusted trial balance.
5. Prepare the financial statements, starting with the income statement.
6. Record the closing entries, which zero the revenue, expense and drawing accounts and move the month's result into Owner's Capital.

The practice set has one exercise for each of these steps. All six use the same company, the same opening balances and the same month, so the trial balance in step 2 contains the transaction you recorded in step 1, step 4 starts from the trial balance in step 2 and applies the adjustments from step 3, and so on. Each exercise still shows everything you need, so you can also jump to the step you want to practise.

The company: Copperleaf Studio, March

Copperleaf Studio is a small service business owned by one person. It starts March with these balances, carried over from February's post-closing trial balance: Cash $13,910, Accounts Receivable $3,790, Supplies $1,140, Prepaid Insurance $3,300, Equipment $22,500, Accumulated Depreciation $4,060, Accounts Payable $1,400, Unearned Revenue $1,800, a long-term Notes Payable of $20,000 and Owner's Capital of $17,380.

During March it has ten transactions:

1. March 1: paid $2,750 rent for the month.
2. March 5: bought $290 of supplies on account.
3. March 8: performed $7,200 of services on account.
4. March 12: collected $2,500 from customers on account.
5. March 15: paid $3,300 of wages.
6. March 16: performed $4,221 of services for cash.
7. March 19: paid suppliers $900 on account.
8. March 22: received $1,550 from a customer in advance for work to be done next month.
9. March 25: paid the $471 utilities bill.
10. March 28: the owner withdrew $3,300 for personal use.

Step 1: record a transaction

The first exercise asks for one of these entries: transaction 8, the customer's advance. Cash goes up by $1,550, so Cash is debited. The work hasn't been done, so the business owes it to the customer. That is a liability, Unearned Revenue, which is credited. Recording it as Service Revenue is the classic mistake here: it would count revenue in March for work done in April. The unearned revenue page covers what happens when the work is later done.

Step 2: the unadjusted trial balance

After all ten entries are posted, each account's balance is its opening balance plus the month's debits minus its credits (or the reverse for credit-balance accounts). For example, Cash: $13,910 + $2,500 + $4,221 + $1,550 − $2,750 − $3,300 − $900 − $471 − $3,300 = $11,460. Accounts Receivable: $3,790 + $7,200 − $2,500 = $8,490. Unearned Revenue: $1,800 + $1,550 = $3,350 credit.

Listing every account gives a trial balance whose debits and credits both total $57,001. Two mistakes are common here. One is to enter both sides' totals instead of the balance. The other is to forget the opening balances, so an account like Equipment, with no March activity, disappears and the rest are understated.

Step 3: the adjusting entries

At March 31 the bookkeeper learns six things that no March transaction recorded:

1. Supplies still on hand are $940; the Supplies account shows $1,430, so $490 was used. Debit Supplies Expense $490, credit Supplies $490.
2. $330 of prepaid insurance expired. Debit Insurance Expense, credit Prepaid Insurance.
3. Depreciation for the month is $580. Debit Depreciation Expense, credit Accumulated Depreciation.
4. Employees earned $480 of wages that will be paid in April. Debit Wages Expense, credit Wages Payable.
5. $900 of the work customers paid for in advance was done. Debit Unearned Revenue, credit Service Revenue.
6. One month's interest on the $20,000 note at 9% a year: $20,000 × 9% ÷ 12 = $150. Debit Interest Expense, credit Interest Payable.

Because no two adjustments share an account, the exercise lets you enter all six in one form, one line per account. Watch the supplies adjustment: the $940 count is what is left, not what was used. And depreciation is credited to Accumulated Depreciation, never to Equipment.

Step 4: the adjusted trial balance

Posting the adjustments changes six existing balances and adds six new accounts: Supplies Expense, Insurance Expense, Depreciation Expense, Wages Payable, Interest Expense and Interest Payable. The totals rise from $57,001 to $58,211, an increase of $1,210, which is exactly the three adjustments that raised a credit balance without lowering another: depreciation $580, accrued wages $480 and interest $150. If you leave off the new accounts, or move only the expense side of each adjustment, the totals won't agree.

Step 5: the income statement

From the adjusted trial balance, Copperleaf's revenue is Service Revenue of $12,321 (the $11,421 from transactions plus the $900 earned from advances). Its expenses are Wages $3,780, Rent $2,750, Utilities $471, Supplies $490, Insurance $330, Interest $150 and Depreciation $580, a total of $8,551. Net income for March is $12,321 − $8,551 = $3,770.

Two accounts on the trial balance look like they belong but don't. Unearned Revenue ($2,450) is a liability. Owner's Drawing ($3,300) is a withdrawal, not an expense; it goes on the statement of owner's equity, which here would show capital rising from $17,380 to $17,850 ($17,380 + $3,770 − $3,300). The classified balance sheet then reports that $17,850.

Step 6: close the books

Closing makes every temporary account start April at zero and moves the month's result into Owner's Capital. There are four entries:

1. Debit Service Revenue $12,321; credit Income Summary $12,321.
2. Debit Income Summary $8,551; credit each expense for its balance.
3. Debit Income Summary $3,770 (net income); credit Owner's Capital $3,770.
4. Debit Owner's Capital $3,300; credit Owner's Drawing $3,300.

Income Summary ends at zero, and Owner's Capital rises by $470 net, to $17,850: the same figure as the statement of owner's equity. That agreement is the final check on the whole month. The exercise lets you enter the four entries one after another in a single form; because Income Summary nets to zero, closing revenues, expenses and drawing straight to capital is accepted too. The post-closing trial balance page shows the balances that remain.

Mistakes that carry through the month

• Revenue recorded too early. Crediting the advance to revenue in step 1 overstates March revenue by $1,550 and understates the liability, and every later step inherits the error.
• Opening balances forgotten. A trial balance without them understates nearly everything, and the statements built from it are wrong even if each later step is done perfectly.
• One-sided adjustments. Recording an expense without reducing the asset (or raising the liability) leaves the adjusted trial balance out of balance.
• Drawing treated as an expense. It understates net income by $3,300; capital is still right only if drawing isn't subtracted a second time.
• Drawing left open at closing. Owner's Capital would be overstated by $3,300 going into April, and Owner's Drawing would carry March's withdrawals into April's figures.

How the exercises check your work

Every answer is checked by code. The month is generated from rules, so each step's correct answer is computed from the same balances you see: entries line by line, trial balances account by account, statements line by line and total by total. If your answer matches one of the known mistakes, the feedback names it. The first step is free; the rest of the set is part of the full course.