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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

From the following information, journalize the last two closing entries and present a statement of owner’s equity for Nishimoto Company.

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To determine

Prepare last two closing entries from the given T-accounts for Company N, and prepare statement of owners’ equity for Company N.

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 last two closing entries from the given T-accounts for Company N.

Third entry:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
December31Income Summary 93,000 
   HN, Capital  93,000
  (Record closing of net income to capital account)   

Table (1)

Description:

  • Income Summary is a clearing account which closes revenue, expense, drawings, and net of revenues and expenses to capital accounts. Since net income is closed, the account is reversed, hence, the Income Summary account is debited.
  • HN, Capital is a capital account. Since net income is transferred to the account, the value increased, and an increase in capital is credited.

Working Note 1:

Compute net income.

Net income = {(Income Summary adjusting credit balance+Income Summary closing credit balance)(Income Summary adjusting debit balance + Income Summary closing debit balance)

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