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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

As of December 31, the end of the current year, the ledger of Harris Company contained the following account balances after adjustment. All accounts have normal balances. Journalize the closing entries.

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To determine

Prepare closing entries.

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.

Step 1: Close the revenue accounts to Income Summary account.

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
December31Professional Fees 7,075 
   Income Summary  7,075
  (Record closing of revenue to Income Summary account)   

Table (1)

Description:

  • Professional Fees 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.

Step 2: Close the expense accounts to Income Summary account.

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
December31Income Summary 3,846 
   Wages Expense  1,268
   Rent Expense  1,090
   Depreciation Expense, Equipment  1,143
   Miscellaneous Expense  345
  (Record closing of expenses to Income Summary account)   

Table (2)

Description:

  • Income Summary is a clearing account which closes revenue, expense, drawings, and net of revenues and expenses to capital accounts...

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