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Cornerstones of Financial Accounti...

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Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Problem 3-69A Preparation of Closing Entries and an Income Statement

Round Grove Alarm Company provides security services to homes in northwestern Indiana. At year end 2019, after adjusting entries have been made, the following list of account balances is prepared:

Chapter 3, Problem 69APSA, Problem 3-69A Preparation of Closing Entries and an Income Statement Round Grove Alarm Company

Required:

  1. Prepare closing entries for Round Grove Alarm.
  2. Prepare an income statement for Round Grove Alarm.

To determine

Concept Introduction:

Closing Entries: Closing entries is the process of closing temporary accounts at the end of year. Closing entries are prepared after preparing the adjusted trial balance. In the process of closing entries following steps are follows in the form of journal entries:

  1. Closing all revenue accounts by debiting the revenue accounts and crediting Income Summary Account.
  2. Closing all expenses by debiting the Income Summary accounts and crediting all expenses accounts.
  3. Closing the net income by debiting the Income Summary accounts and crediting Capital or Retained earrings account.
  4. Closing the withdrawals accounts by debiting the Capital or Retained earrings account and crediting the withdrawal account.

Requirement-1; To Prepare:

The closing entries for the year,

Explanation

The closing entries for the year are explained as follows:

    Round Grove Alarm Company
    Closing entries
    For the year 2019
    Date Account TitleDebit Credit
    Dec. 31Service Revenue $ 612,900
    Income Summary $ 612,900
    (Being Revenue accounts closed)
    Dec. 31Income Summary $ 540,950
    Depreciation Expense $ 45,300
    Income Tax Expense $ 30,800
    Interest Expense $ 4,800
To determine

Concept Introduction:

Closing Entries: Closing entries is the process of closing temporary accounts at the end of year. Closing entries are prepared after preparing the adjusted trial balance. In the process of closing entries following steps are follows in the form of journal entries:

  1. Closing all revenue accounts by debiting the revenue accounts and crediting Income Summary Account.
  2. Closing all expenses by debiting the Income Summary accounts and crediting all expenses accounts.
  3. Closing the net income by debiting the Income Summary accounts and crediting Capital or Retained earrings account.
  4. Closing the withdrawals accounts by debiting the Capital or Retained earrings account and crediting the withdrawal account.

Requirement-2; To Prepare:

The Income statement for the year.

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