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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

In the closing procedure, what happens to (a) Purchases Discounts, (b) Sales Returns and Allowances, (c) Freight In, and (d) Gain on Disposal of Property and Equipment?

To determine

Explain the accounting treatment of the given accounts in the closing procedure.

Explanation

Closing entries: The journal entries prepared to close the temporary accounts to capital account are referred to as closing entries. The revenue, expense, and drawing 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.

Steps in closing procedure:

  • Close the revenue accounts and the accounts with credit balances to Income Summary account.
  • Close the expense accounts and the accounts with debit balances to Income Summary account.
  • Close the Income Summary account and transfer the net income or net loss balance to the Capital account.
  • Close the Drawing account to Capital account.

Accounting treatment:

(a).

Purchase Discounts: It is a contra purchase or contra cost account...

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