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Closing entries with net income Assume that the entry closing total revenues of $3,190,000 and total expenses of $2,350,000 has been made for the year. At the end of the fiscal year, Teresa Schafer, Capital has a credit balance of $l,885,000 and Teresa Schafer, Drawing has a balance of $770,000. (a). Journalize the entry required to close the Teresa Schafer, Drawing account. (b). Determine the amount of Teresa Schafer, Capital at the end of the period.

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Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

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Chapter
Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
Chapter 4, Problem 4.16EX
Textbook Problem
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Closing entries with net income

Assume that the entry closing total revenues of $3,190,000 and total expenses of $2,350,000 has been made for the year. At the end of the fiscal year, Teresa Schafer, Capital has a credit balance of $l,885,000 and Teresa Schafer, Drawing has a balance of $770,000.

(a).    Journalize the entry required to close the Teresa Schafer, Drawing account.

(b).    Determine the amount of Teresa Schafer, Capital at the end of the period.

To determine

Closing entries

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Rules of Debit and Credit:

  • Debit, the revenue account and owners capital account balance. In addition debit owners capital account if it suffer loss (net loss)
  • Credit, the expense account, owners’ capital if it earn income (net income) and owners’ drawing account balance.

To Journalize: The closing entries.

Explanation of Solution

Closing entry of owner’s drawings to capital:

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

  TS, Capital (OE–)   770,000  
  TS Drawings (OE+)     770,000
  (To close the balance of owners’ drawings account to owners’ capital account)      

Table (1)

Explanation:

  • Owner’s capital is a component of owner’s equity. Thus, owners ‘equity is debited since the capital are decreased on owners’ drawings.
  • Owner’s drawings are a component of owner’s equity. It is credited because the balance of owners’ drawing account is transferred to owners ‘capital account.

Notes:

The balance of the owner's drawing account is transferred to the owner's capital account. Hence, the owners’ drawing account balance are transferred to KB, Capital account...

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Chapter 4 Solutions

Accounting
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