Concept explainers
CLOSING ENTRIES (NET LOSS) Using the following partial listing of T accounts, prepare closing entries in general journal form dated January 31, 20--. Then
Prepare closing journal entries in general journal form and post those entries to the T accounts.
Explanation of Solution
Closing entries: The journal entries prepared to close the temporary accounts to permanent account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.
Prepare the closing entries.
Date | Accounts and Explanation |
Account Number |
Debit ($) | Credit ($) |
June 30 | Referral fees (SE–) | 401 | 2,813 | |
Income Summary (SE+) | 313 | 2,813 | ||
(To close the revenue account.) | ||||
June 30 | Income summary (SE–) | 313 | 2,987 | |
Wages expense (SE+) | 511 | 1,080 | ||
Advertising expense (SE+) | 512 | 34 | ||
Rent expense (SE+) | 521 | 900 | ||
Supplies expense (SE+) | 523 | 322 | ||
Phone expense (SE+) | 525 | 133 | ||
Utilities expense (SE+) | 533 | 102 | ||
Insurance expense (SE+) | 535 | 120 | ||
Gas and oil expense (SE+) | 538 | 88 | ||
Depreciation expense (SE+) | 541 | 110 | ||
Miscellaneous expense (SE+) | 549 | 98 | ||
(To close the expense accounts.) | ||||
June 30 | RZ, Capital (SE+) | 313 | 174 | |
Income Summary (SE–) | 313 | 174 | ||
(To close the income summary accounts) | ||||
June 30 | RZ, Capital (SE–) | 311 | 2,000 | |
RZ, Drawings (SE+) | 312 | 2,000 | ||
(To close withdrawals account.) |
Table (1)
Working Note:
Calculate the amount of RZ capital (transferred).
Revenue account: In this closing entry, the referral fees account is closed by transferring the amount of referral fees account to Income summary account in order to bring the revenue account balance to zero. Hence, debit referral fees account and credit Income summary account.
Expense account: In this closing entry, all expense accounts are closed by transferring the amount of total expense to the Income summary account in order to bring the expense account balance to zero. Hence, debit the Income summary account and credit all expenses account.
Income summary account: Income summary account is a temporary account. This account is debited to close the net income value to RZ capital account.
RZ capital is a component of stockholders’ equity account. The value of RZ capital increased because net income is transferred. Therefore, it is credited.
Withdrawals account: RZ capital is a component of owner’s equity. Thus, owners ‘equity is debited since the capital is decreased on owners’ drawings.
RZ withdrawals are a component of owner’s equity. It is credited because the balance of owners’ withdrawals account is transferred to owners ‘capital account.
T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.
Posting the closing entries to the T- account:
Accumulated Depreciation | Account No – 181.1 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Ending balance | 110 | Beginning balance | 110 | |||
Beginning balance | 110 |
Table (2)
Wages Payable | Account No - 219 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Ending balance | 260 | Beginning balance | 260 | |||
Beginning balance | 260 |
Table (3)
RZ Capital | Account No – 311 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Income summary | 174 | Beginning balance | 6,000 | |||
RZ Drawings | 2,000 | |||||
Ending balance | 3,826 | |||||
Beginning balance | 3,826 |
Table (4)
SG Drawings | Account No - 312 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 2,000 | RZ Capital | 2,000 | |||
Total | 2,000 | Total | 2,000 |
Table (5)
Income Summary | Account No - 313 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Total expense | 2,987 | Referral fees | 2,813 | |||
RZ Capital | 174 | |||||
Total | 2,987 | Total | 2,987 |
Table (6)
Referral Fees | Account No - 401 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Income summary | 2,813 | Beginning balance | 2,813 | |||
Total | 2,813 | Total | 2,813 |
Table (7)
Wages Expense | Account No - 511 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 1,080 | Income summary | 1,080 | |||
Total | 1,080 | Total | 1,080 |
Table (8)
Advertising Expense | Account No - 512 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 34 | Income summary | 34 | |||
Total | 34 | Total | 34 |
Table (9)
Rent Expense | Account No - 521 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 900 | Income summary | 900 | |||
Total | 900 | Total | 900 |
Table (10)
Supplies Expense | Account No - 524 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 322 | Income summary | 322 | |||
Total | 322 | Total | 322 |
Table (11)
Phone Expense | Account No - 525 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 133 | Income summary | 133 | |||
Total | 133 | Total | 133 |
Table (12)
Utilities Expense | Account No - 533 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 102 | Income summary | 102 | |||
Total | 102 | Total | 102 |
Table (13)
Insurance Expense | Account No - 535 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 120 | Income summary | 120 | |||
Total | 120 | Total | 120 |
Table (14)
Gas and Oil Expense | Account No - 538 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 88 | Income summary | 88 | |||
Total | 88 | Total | 88 |
Table (15)
Depreciation Expense | Account No - 541 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 110 | Income summary | 110 | |||
Total | 110 | Total | 110 |
Table (16)
Miscellaneous Expense | Account No - 549 | |||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
Beginning balance | 98 | Income summary | 98 | |||
Total | 98 | Total | 98 |
Table (17)
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Chapter 6 Solutions
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