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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

Rather than going directly to college, some students take time off to travel abroad, learn new skills, or volunteer. This period is known as a “gap year” Real Gap Experience provides hundreds of gap year traveling opportunities in over 45 countries around the world. The company offers everything from volunteering to building houses in Guatemala to teaching in China (for pay) to taking a year-long, around-the-world trip. What does this have to do with accounting, and why is it important? Every company needs to keep a record of its financial activities so that financial statements can be presented and used for decision making. Real Gap Experience’s accounting records are most likely computerized, but the company still needs to go through the closing process. Why is the closing process important to a company such as Real Gap Experience? What types of accounts would be used during the closing process for this company?

To determine

Indicate the importance of closing process for RG Experience, and mention the type of accounts used in closing process of this company.

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:

  • Close the revenue accounts to Income Summary account.
  • Close the expense accounts to Income Summary account.
  • Close the Income Summary account and transfer the net income or net loss balance to the Capital account.
  • Close the Drawing account to Capital account.

Importance of closing entries: The amounts of revenue, expenses, and drawings accounts recorded in the financial statements should always pertain to only one fiscal period...

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