Chapter 6, Problem 2CTP

Demetria Davis, the bookkeeper for Home Interiors and Designs Company, has just finished posting the closing entries for the year to the ledger. She is concerned about the following balances:

Davis knows that these amounts should agree and asks for your assistance in reviewing her work.

Your review of the general ledger of Home Interiors and Designs Company reveals a beginning capital balance of $50,000. You also review the general journal for the accounting period and find the closing entries shown below.

1. 1. What errors did Ms. Davis make in preparing the closing entries for the period?
2. 2. Prepare a general journal entry to correct the errors made.
3. 3. Explain why the balance of the capital account in the ledger after closing entries have been posted will be the same as the ending capital balance on the statement of owner’s equity.