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College Accounting (Book Only): A ...

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ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

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

From the following T accounts, journalize the closing entries dated December 31 for Baylor Company.

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To determine

Prepare closing entries from the given T-accounts for Company B.

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:

  1. 1. Close the revenue accounts and the income statement accounts with credit balances to Income Summary account.
  2. 2. Close the expense accounts and the income statement accounts with debit balances to Income Summary account.
  3. 3. Close the Income Summary account and transfer the net income or net loss balance to the Capital account.
  4. 4. Close the Drawing account to Capital account.

Prepare closing entries from the given T-accounts for Company B.

Step 1:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
December31Sales 502,000 
  Purchases Returns and Allowances 8,600 
  Purchase Discounts 4,300 
   Income Summary  514,900
  (Record closing of revenue and income statement accounts with credit balances to Income Summary account)   

Table (1)

Description:

  • Sales is a revenue account. Revenue account has a normal credit balance. Since revenue is closed to Income Summary account, the account is debited.
  • Purchases Returns and Allowances and Purchase Discounts are contra-cost accounts and have normal credit balances. Since contra-cost accounts are closed to Income Summary account, the accounts are debited.
  • Income Summary is a clearing account which closes revenue, expense, drawings, and net of revenues and expenses to capital accounts. The account is credited to hold the transferred balance from revenue account and other income statement accounts with credit balances.

Step 2:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
December31Income Summary 353,400 
   Sales Returns and Allowances  7,400
   Purchases  235,600
   Freight-In  11,200
   Salary Expense  65,000
   Rent Expense  22,000
   Miscellaneous Expense  12,200
  (Record closing of expenses and income statement accounts with debit balances to Income Summary account)   

Table (2)

Description:

  • Income Summary is a clearing account which closes revenue, expense, drawings, and net of revenues and expenses to capital accounts. The account is debited to hold the transferred balance from expense accounts other income statement accounts with debit balances...

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