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Closing entries On July 31, the close of the fiscal year, the balances of the accounts appearing in the ledger of Serbian Interiors Company, a fumiture wholesaler, are as follows: Accumulated Depr.—Building $365,000 Inventory $ 115,000 Administrative Expenses 440,000 Notes Payable 100,000 Building 810,000 Retained Earnings 455,000 Cash 78,000 Sales 1,437,000 Common Stock 75,000 Sales Tax Payable 4,500 Cost of Goods Sold 775,000 Selling Expenses 160,000 Dividends 15,000 Store Supplies 16,000 Interest Expense 6,000 Store Supplies Expense 21,500 Prepare the July 31 closing entries for Serbian Interiors Company.

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Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

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Chapter
Section
BuyFindarrow_forward

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
Chapter 5, Problem 5.32EX
Textbook Problem
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Closing entries

On July 31, the close of the fiscal year, the balances of the accounts appearing in the ledger of Serbian Interiors Company, a fumiture wholesaler, are as follows:

Accumulated Depr.—Building $365,000 Inventory $ 115,000
Administrative Expenses 440,000 Notes Payable 100,000
Building 810,000 Retained Earnings 455,000
Cash 78,000 Sales 1,437,000
Common Stock 75,000 Sales Tax Payable 4,500
Cost of Goods Sold 775,000 Selling Expenses 160,000
Dividends 15,000 Store Supplies 16,000
Interest Expense 6,000 Store Supplies Expense 21,500

Prepare the July 31 closing entries for Serbian Interiors Company.

To determine

Closing entries: These refers to the journal entries that are recorded at the end of an each accounting period. It closes all revenue accounts earned, and all expenses account incurred during the current accounting year to the company’s capital account.

To Record: The closing entries of Company S.

Explanation of Solution

  • Sales revenue is revenue and generally it shows credit balance. To close the sales revenue, it should be debited. Therefore, debit sales revenue account by $1,437,000.
  • Income Summary is a clearing account or temporary account used to close revenues and expenses. Therefore, credit income summary account by $1,437,000.

Record the closing entry for expenses and other debit accounts.

Date Accounts and Explanation Post Ref Debit ($) Credit ($)
July 31 Income Summary 1,402,500
     Cost of Goods Sold 775,000
     Selling Expense 160,000
     Administrative Expense 440,000
     Interest Expense 6,000
     Store Supplies Expense 21,500
(To close the expenses and other debit accounts)

Table (2)

Explanation:

  • Income summary is a component of equity and it decreases by $1,402,500. Therefore, debit income summary account by $1,402,500.
  • Cost of goods sold, Selling Expense, Administrative Expense, Interest Expense, and Store supplies expense accounts are closed by transferring their amount to Income Summary account. Therefore, credit all these expense and debit accounts with their respective amounts.

Record the closing entry for income summary account.

Date Accounts and Explanation Post Ref Debit ($) Credit ($)
July 31 Income Summary 34,500
     Retained Earnings 34,500 (1)
(To close income summary account)

Table (3)

Explanation:

  • Income summary is a component of equity and it decreases by $34,500...

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Chapter 5 Solutions

Financial & Managerial Accounting
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