I have 2 questions.1. I am not sure if I am calculating the "net income" and "earnings before taxes" (EBT) correctly.Are the numbers suppose to match?  Please explain how to calculate the two given the below Income Statement.Formulas:Net Income = Revenue - ExpensesEBT = Revenue - (Expenses - taxes)2. How do I create closing entries for the expenses to set them to zero for the next accounting cycle.My understanding is a T-account needs to be created for the expenses and adjustments made so the Dr and Cr balance to 0.  Closing Entry:   Account Name DrCrRevenues $   1,745,670.41      Retained Earning $           1,745,670.41         Closing Entry:   Account Name DrCr    Income $   1,167,058.20      Expenses   Wage Expense $866,004.00 Wage Tax expense $57,829.08 Medical Insurance Expense $32,400.00 Auto Insurance Expense $4,140.00 Interest Expense $16,492.92 Electrical & Gas Service Expense $6,736.80 Liability Insurance Expense $14,805.20 Telecommunications Expense $1,821.00 Cell Phone Service Expense $3,660.00 Postage Expense $555.75 Professional Services Expense $8,437.50 Maintenance Expense $4,716.00 Office supplies expense $30,196.00 Dry Cleaning Expense $1,703.75 Storefront Paper Supplies Expense $3,374.25 Rental Expense $19,008.00 Waste Serices Expense $600.00 Car Maintenance and Fuel Expense $3,956.40 Repair Expense $1,508.75 Water Expense $1,557.50 Soda Machine Repair and CO2 Expense $4,728.00 Credit Card Expense $3,714.30 Cooking Supplies Expense $47,745.00 Banking Fees $1,560.00 Depreciation Expense: Equipment $16,608.00 Depreciation Expense: Plant & Property $13,200.00    Close Expenses to Income Summary        Closing Entry:   Account Name DrCrRetained Earnings $         13,125.00  Dividends $13,125.00Close Divends to Retained Earnings   Acct #s Annual FS 2021 4100Sales Revenue: Corporate Accounts$1,400,353.41 4101Sales Revenues: Storefront$345,317.00  Total Sales Revenue$1,745,670.41 5000Cost of Goods Sold:Ingredients$264,716.87 5010Cost of Goods Sold: Boxes and Cupcake cups$15,389.90 5020Cost of Goods Sold: Beverages$23,081.20  Total COGS$303,187.97  Gross Profit$1,442,482.44 4102Interest Revenue$306.00  Gross Profit Plus Interest Revenue$1,442,788.44      Expenses  6200Wage Expense$866,004.00 6201-6205Wage Tax expense$57,829.08 7001Medical Insurance Expense$32,400.00 7002Auto Insurance Expense$4,140.00 7003Interest Expense$16,492.92 7004Electrical & Gas Service Expense$6,736.80 7005Liability Insurance Expense$14,805.20 7006Telecommunications Expense$1,821.00 7007Cell Phone Service Expense$3,660.00 7010Postage Expense$555.75 7011Professional Services Expense$8,437.50 7012Maintenance Expense$4,716.00 7013Office supplies expense$30,196.00 7014Dry Cleaning Expense$1,703.75 7015Storefront Paper Supplies Expense$3,374.25 7016Rental Expense$19,008.00 7017Waste Serices Expense$600.00 7018Car Maintenance and Fuel Expense$3,956.40 7019Repair Expense$1,508.75 7020Water Expense$1,557.50 7021Soda Machine Repair and CO2 Expense$4,728.00 7022Credit Card Expense$3,714.30 7023Cooking Supplies Expense$47,745.00 7024-7025Banking Fees$1,560.00  Selling and Admin Expenses$1,137,250.20     8000Depreciation Expense: Equipment$16,608.00 8010Depreciation Expense: Plant & Property$13,200.00  Total Depreciation Expense    $29,808.00  Total Expenses$1,167,058.20      Earnings before Taxes$275,730.24diff    6207Corporate Income Tax Expense$93,746.98  Net Income$275,730.24diff Earnings per share       Statement of Change in Owner's Equity   Beginning Common Stock (par $1)$50,000.00  Beginning APIC$120,075.91  Plus: Common Stock Issued$0.00  Ending Common Stock$170,075.91      Beginning Retained Earnings$402,066.22  Plus Net income$275,730.24 3300Less: Dividends Paid$13,125.00  Ending Retained Earnings$664,671.46

Question
Asked Oct 7, 2019

I have 2 questions.

1. I am not sure if I am calculating the "net income" and "earnings before taxes" (EBT) correctly.
Are the numbers suppose to match?  Please explain how to calculate the two given the below Income Statement.

Formulas:
Net Income = Revenue - Expenses
EBT = Revenue - (Expenses - taxes)

2. How do I create closing entries for the expenses to set them to zero for the next accounting cycle.

My understanding is a T-account needs to be created for the expenses and adjustments made so the Dr and Cr balance to 0.  

Closing Entry:      
Account Name   Dr Cr
Revenues   $   1,745,670.41  
       
  Retained Earning   $           1,745,670.41
 
       
       
Closing Entry:      
Account Name   Dr Cr
       
Income   $   1,167,058.20  
       
  Expenses    
  Wage Expense   $866,004.00
  Wage Tax expense   $57,829.08
  Medical Insurance Expense   $32,400.00
  Auto Insurance Expense   $4,140.00
  Interest Expense   $16,492.92
  Electrical & Gas Service Expense   $6,736.80
  Liability Insurance Expense   $14,805.20
  Telecommunications Expense   $1,821.00
  Cell Phone Service Expense   $3,660.00
  Postage Expense   $555.75
  Professional Services Expense   $8,437.50
  Maintenance Expense   $4,716.00
  Office supplies expense   $30,196.00
  Dry Cleaning Expense   $1,703.75
  Storefront Paper Supplies Expense   $3,374.25
  Rental Expense   $19,008.00
  Waste Serices Expense   $600.00
  Car Maintenance and Fuel Expense   $3,956.40
  Repair Expense   $1,508.75
  Water Expense   $1,557.50
  Soda Machine Repair and CO2 Expense   $4,728.00
  Credit Card Expense   $3,714.30
  Cooking Supplies Expense   $47,745.00
  Banking Fees   $1,560.00
  Depreciation Expense: Equipment   $16,608.00
  Depreciation Expense: Plant & Property   $13,200.00
       
Close Expenses to Income Summary
       
       
Closing Entry:      
Account Name   Dr Cr
Retained Earnings   $         13,125.00  
  Dividends   $13,125.00
Close Divends to Retained Earnings

 

 

 

Acct #s   Annual FS 2021  
4100 Sales Revenue: Corporate Accounts $1,400,353.41  
4101 Sales Revenues: Storefront $345,317.00  
  Total Sales Revenue $1,745,670.41  
5000 Cost of Goods Sold:Ingredients $264,716.87  
5010 Cost of Goods Sold: Boxes and Cupcake cups $15,389.90  
5020 Cost of Goods Sold: Beverages $23,081.20  
  Total COGS $303,187.97  
  Gross Profit $1,442,482.44  
4102 Interest Revenue $306.00  
  Gross Profit Plus Interest Revenue $1,442,788.44  
       
  Expenses    
6200 Wage Expense $866,004.00  
6201-6205 Wage Tax expense $57,829.08  
7001 Medical Insurance Expense $32,400.00  
7002 Auto Insurance Expense $4,140.00  
7003 Interest Expense $16,492.92  
7004 Electrical & Gas Service Expense $6,736.80  
7005 Liability Insurance Expense $14,805.20  
7006 Telecommunications Expense $1,821.00  
7007 Cell Phone Service Expense $3,660.00  
7010 Postage Expense $555.75  
7011 Professional Services Expense $8,437.50  
7012 Maintenance Expense $4,716.00  
7013 Office supplies expense $30,196.00  
7014 Dry Cleaning Expense $1,703.75  
7015 Storefront Paper Supplies Expense $3,374.25  
7016 Rental Expense $19,008.00  
7017 Waste Serices Expense $600.00  
7018 Car Maintenance and Fuel Expense $3,956.40  
7019 Repair Expense $1,508.75  
7020 Water Expense $1,557.50  
7021 Soda Machine Repair and CO2 Expense $4,728.00  
7022 Credit Card Expense $3,714.30  
7023 Cooking Supplies Expense $47,745.00  
7024-7025 Banking Fees $1,560.00  
  Selling and Admin Expenses $1,137,250.20  
       
8000 Depreciation Expense: Equipment $16,608.00  
8010 Depreciation Expense: Plant & Property $13,200.00  
  Total Depreciation Expense    
    $29,808.00  
  Total Expenses $1,167,058.20  
       
  Earnings before Taxes $275,730.24 diff
       
6207 Corporate Income Tax Expense $93,746.98  
  Net Income $275,730.24 diff
  Earnings per share    
       
  Statement of Change in Owner's Equity    
  Beginning Common Stock (par $1) $50,000.00  
  Beginning APIC $120,075.91  
  Plus: Common Stock Issued $0.00  
  Ending Common Stock $170,075.91  
       
  Beginning Retained Earnings $402,066.22  
  Plus Net income $275,730.24  
3300 Less: Dividends Paid $13,125.00  
  Ending Retained Earnings $664,671.46  
check_circleExpert Solution
Step 1

Earnings before tax (EBT) and net income are computed as explained below:

Earnings before taxes are computed by deducting operating expenses, selling and administrative expenses from total revenues.

Net income is computed by deducting taxes from earnings before tax. If taxes are zero, then earnings before taxes and net income are same.

Step 2

Prepare income Statement with EBT and net income as shown below:

В
С
D
Income statement
Amount (S) Amount (S)
6
Particulars
7 Revenues:
8 Sale revenue: Corporate accounts
9 Sale revenue: Storefront
10 Total sales revenue
1400353.4
345317.00
1745670.41
|Less: Cost of goods sold
12 Ingredients
13 Boxes and Cupcakes cups
14 Beverages
15 Total Cost of goods sold
16 Gross profit
17 Add: Interest income
18 Gross profit after interest income
264716.87
15389.90
23081.20
303187.97
1442482.44
306.00
1442788.44
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Image Transcriptionclose

В С D Income statement Amount (S) Amount (S) 6 Particulars 7 Revenues: 8 Sale revenue: Corporate accounts 9 Sale revenue: Storefront 10 Total sales revenue 1400353.4 345317.00 1745670.41 |Less: Cost of goods sold 12 Ingredients 13 Boxes and Cupcakes cups 14 Beverages 15 Total Cost of goods sold 16 Gross profit 17 Add: Interest income 18 Gross profit after interest income 264716.87 15389.90 23081.20 303187.97 1442482.44 306.00 1442788.44

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Step 3

Continuation of income state...

C
г
18 Gross profit after interest income
19 Expenses:
20 Depreciation Expense: Equipment
21 Depreciation Expense: Plant & Property
22 Wage Expense
23 Wage Tax expense
24 Medical Insurance Expense
25 Auto Insurance Expense
26 Interest Expense
27 Electrical & Gas Service Expense
28 Liability Insurance Expense
29 Telecommunications Expense
30 Cell Phone Service Expense
31 Postage Expense
32 Professional Services Expense
33 Maintenance Expense
34 Office supplies expense
35 Dry Cleaning Expense
36 Storefront Paper Supplies Expense
37 Rental Expense
38 Waste Services Expense
39 Car Maintenance and Fuel Expense
40 Repair Expense
41 Water Expense
42 Soda Machine Repair and CO2 Expense
43 Credit Card Expense
44 Cooking Supplies Expense
45 Banking Fees
46 Total expenses
47 Earnings before tax
1442788.44
16608.00
13200.00
866004.00
57829.08
32400.00
4140.00
16492.92
6736.80
14805.20
1821.00
3660.00
555.75
8437.50
4716.00
30196.00
1703.75
3374.25
19008.00
600.00
3956.40
1508.75
1557.50
4728.00
3714.30
47745.00
1560.00 1167058.20
275730 24
1167058.20
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Image Transcriptionclose

C г 18 Gross profit after interest income 19 Expenses: 20 Depreciation Expense: Equipment 21 Depreciation Expense: Plant & Property 22 Wage Expense 23 Wage Tax expense 24 Medical Insurance Expense 25 Auto Insurance Expense 26 Interest Expense 27 Electrical & Gas Service Expense 28 Liability Insurance Expense 29 Telecommunications Expense 30 Cell Phone Service Expense 31 Postage Expense 32 Professional Services Expense 33 Maintenance Expense 34 Office supplies expense 35 Dry Cleaning Expense 36 Storefront Paper Supplies Expense 37 Rental Expense 38 Waste Services Expense 39 Car Maintenance and Fuel Expense 40 Repair Expense 41 Water Expense 42 Soda Machine Repair and CO2 Expense 43 Credit Card Expense 44 Cooking Supplies Expense 45 Banking Fees 46 Total expenses 47 Earnings before tax 1442788.44 16608.00 13200.00 866004.00 57829.08 32400.00 4140.00 16492.92 6736.80 14805.20 1821.00 3660.00 555.75 8437.50 4716.00 30196.00 1703.75 3374.25 19008.00 600.00 3956.40 1508.75 1557.50 4728.00 3714.30 47745.00 1560.00 1167058.20 275730 24 1167058.20

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