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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

The Income Statement columns of the work sheet of Redfax Company for the fiscal year ended December 31 follow. During the year, D. Redfax withdrew $12,000. Journalize the closing entries.

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To determine

Prepare closing entries for Company R.

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 Company R.

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

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
December31Income from Services 32,750 
  Rental Revenue 18,000 
   Income Summary  50,750
  (Record closing of revenue to Income Summary account)   

Table (1)

Description:

  • Income from Services and Rental Revenue are revenue accounts. 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...

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