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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

After the adjusting entries are recorded and posted and the financial statements have been prepared, you are ready to record the closing entries. Closing entries zero out the temporary owner’s equity accounts (revenue(s), expenses(s), and Drawing). This process transfers the net income or net loss and the withdrawals to the Capital account. In addition, the closing process prepares the records for the new fiscal period.

Required

  1. 1. Journalize the dosing entries in the general journal.

    (If you are using Working Papers to prepare the closing entries, enter your transactions beginning on page 5.)

  2. 2. Post the closing entries to the general ledger accounts.

    (Skip this step if you are using CLGL.)

  3. 3. Prepare a post-dosing trial balance as of October 31, 20--.

Check Figures

  1. 1. Debit to Income Summary second entry, $12,023.25
  2. 2. Post-closing trial balance total, $37,420.00

1.

To determine

Prepare closing entries for ABA Spa.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

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 to Income Summary account.
  2. 2. Close the expense accounts 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 closing entries for ABA Spa.

Entry 1:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October31Income from Services41119,200 
   Income Summary 313 19,200
  (Record closing of revenue to Income Summary account)   

Table (1)

Description:

  • Income from Services is a revenue account. Revenue account has a normal credit balance. Since revenue is closed to Income Summary account, the account is debited.
  • Income Summary is a clearing account which closes revenue, expense, drawings, and net of revenues and expenses to capital accounts. The account is credited to hold the transferred balance from revenue account.

Entry 2:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October31Income Summary 31312,023.25 
   Wages Expense611 8,715.00
   Rent Expense612 1,000.00
   Office Supplies Expense613 230.00
   Spa Supplies Expense614 430.00
   Laundry Expense615 105.00
   Advertising Expense616 415...

2.

To determine

Post the closing entries to ledger accounts.

3.

To determine

Prepare a post-closing trial balance for ABA Spa as at October 31, 20--.

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