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Closing entries using periodic inventory system United Rug Company is a small run retailer owned and operated by Pat Kirwan. After the accounts have been adjusted on December 31, the following selected account balances were taken from the ledger: Advertising Expense................................. $ 36,000 Depreciation Expense............................... 13,000 Dividends.......................................... 65,000 Freight In........................................... 17,000 Merchandise Inventory. December 1................... 375,000 Merchandise Inventory. December 31................. 460,000 Miscellaneous Expense.............................. 9,000 Purchases............................................ 1,760,000 Purchases Discounts................................. 35,000 Purchases Returns and Allowances................... 45,000 Salaries Expense..................................... 375,000 Sales............................................... 2,220,000 Journalize the closing entries on December 31.

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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Section
BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 5, Problem 5.39EX
Textbook Problem
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Closing entries using periodic inventory system

United Rug Company is a small run retailer owned and operated by Pat Kirwan. After the accounts have been adjusted on December 31, the following selected account balances were taken from the ledger:

Advertising Expense................................. $ 36,000
Depreciation Expense............................... 13,000
Dividends.......................................... 65,000
Freight In........................................... 17,000
Merchandise Inventory. December 1................... 375,000
Merchandise Inventory. December 31................. 460,000
Miscellaneous Expense.............................. 9,000
Purchases............................................ 1,760,000
Purchases Discounts................................. 35,000
Purchases Returns and Allowances................... 45,000
Salaries Expense..................................... 375,000
Sales............................................... 2,220,000

Journalize the closing entries on December 31.

To determine

Closing entries: This 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 P.

Explanation of Solution

Record the closing entry for revenues.

Date Accounts and Explanation Post Ref Debit ($) Credit ($)
December 31 Sales Revenue   2,220,000  
  Purchase Returns and Allowances   45,000  
  Purchase Discounts   35,000  
  Inventory (Ending)   460,000  
             Income Summary     2,760,000
  (To close revenue and other credit accounts and to record ending merchandise inventory.)      

Table (1)

  • 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 $2,220,000.
  • Purchase returns and allowances, Purchase discount, and inventory (Ending) are closed by transferring their amount to Income Summary account. Therefore, debit all these credit accounts with their respective amounts.
  • Income Summary is a clearing account or temporary account used to close revenues and expenses. Therefore, credit income summary account by $2,780,000.

Record the closing entry for expenses and other debit accounts.

Date Accounts and Explanation Post Ref Debit ($) Credit ($)
December 31 Income Summary   2,585,000  
       Purchases     1,760,000
       Freight In     17,000
       Inventory (Beginning)     375,000
       Salaries Expense     375,000
       Advertising Expense     36,000
       Depreciation Expense     13,000
       Miscellaneous Expense     9,000
  (To close expenses and other debit accounts)      

Table (2)

  • Income summary is a component of equity and it decreases by $2,585,000...

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Chapter 5 Solutions

Financial & Managerial Accounting
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