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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Closing entries

After the accounts have been adjusted at October 31, the end of the fiscal year, the following balances were taken from the ledger of Smart Delivery Services Co.:

Fraser Smart, Capital $3,550,000
Fraser Smart, Drawing 40,000
Fees Earned 1,145,000
Wages Expense 740,000
Rent Expense 65,000
Supplies Expense 14,750
Miscellaneous Expense 8,800

Journalize the four entries required to close the accounts.

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 earns income (net income) and owners’ drawing account balance.

To Journalize: The closing entries for S delivery service company.

Explanation

Closing entry for revenue account:

Date Accounts title and Explanation Post Ref.

Debit

($)

Credit

($)

October 31 Fees Earned (OE–)   1,145,000  
  Income Summary (OE+)     1,145,000
  (To close the revenue account )      

Table (1)

  • Fees earned are a revenue account. Since the amount of revenue is closed to Income Summary account. Therefore, it is debited.
  • Income Summary account is a temporary account. This account is credited to close the revenue value.

Closing entry for expense account:

Date Accounts title and Explanation Post Ref.

Debit

($)

Credit

($)

October 31 Income Summary (OE–)   828,550  
  Wages Expense (OE+)     740,000
  Rent Expense (OE+)     65,000
  Supplies Expense (OE+)     14,750
  Miscellaneous Expense (OE+)     8,800
  (To close the expenses account.      

Table (2)

  • Income Summary account is a temporary account. This account is debited to close the expense value.
  • Wages Expense, Rent Expense, Supplies Expense, and Miscellaneous Expense are expense accounts. Since the amount of expenses are closed to Income Summary account. Therefore, it is credited.

Closing entry for transferring the income summary to owners’ capital:

Date Accounts title and Explanation Post Ref.

Debit

($)

Credit

($)

October 31 Income Summary (OE–)   316,450  
  FS’s Capital (OE+)     316,450
  (To close balance of income summary are  transferred to owners’ capital account)      

Table (3)

  • Income Summary account is a temporary account...

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