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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

CLOSING ENTRIES (NET INCOME) Set up T accounts for Major Advising based on the work sheet in Exercise 6-1A and the chart of accounts provided below. Enter the existing balance for each account. Prepare closing entries in general journal form. Then post the closing entries to the T accounts.

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To determine

Prepare closing journal entries and post those entries to the T accounts.

Explanation

Closing entries: The journal entries prepared to close the temporary accounts to permanent account are referred to as closing entries. The revenue, expense, and dividends 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.

Prepare the closing entries.

DateAccounts and Explanation

Account

Number

Debit

 ($)

Credit ($)
June 30Service fees (SE–)4014,813 
 Income Summary (SE+)313 4,813
 (To close the revenue account.)   
     
June 30Income summary (SE–)3132,987 
 Wages expense (SE+)511 1,080
 Advertising expense (SE+)512 34
 Rent expense (SE+)521 900
 Supplies expense (SE+)524 322
 Phone expense (SE+)525 133
 Utilities expense (SE+)533 102
 Insurance expense (SE+)535 120
 Gas and oil expense (SE+)538 88
 Depreciation expense (SE+)542 110
 Miscellaneous expense (SE+)549 98
 (To close the expense accounts.)   
     
June 30Income Summary (SE–)3131,826 
 MA, Capital (SE+)311 1,826
 (To close the income summary accounts)   
     
June 30MA, Capital (SE–)3112,000 
 MA, Drawings (SE+)312 2,000
 (To close withdrawals account.)   

Table (1)

Working Note:

Calculate the amount of MA capital (transferred).

MA Capital =(Total Revenues-Total Expenses)=($4,813$2,987)=$1,826

Revenue account: In this closing entry, the service fees account is closed by transferring the amount of service fees account to Income summary account in order to bring the revenue account balance to zero. Hence, debit service fees account and credit Income summary account.

Expense account: In this closing entry, all expense accounts are closed by transferring the amount of total expense to the Income summary account in order to bring the expense account balance to zero. Hence, debit the Income summary account and credit all expenses account.

Income summary account: Income summary account is a temporary account. This account is debited to close the net income value to MA capital account.

MA capital is a component of stockholders’ equity account. The value of MA capital increased because net income is transferred. Therefore, it is credited.

Withdrawals account: MA capital is a component of owner’s equity. Thus, owners ‘equity is debited since the capital is decreased on owners’ drawings.

MA withdrawals are a component of owner’s equity. It is credited because the balance of owners’ withdrawals account is transferred to owners ‘capital account.

T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

Posting the closing entries to the T- account:

Cash Account No - 101
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance3,262  Ending balance3,262
       
 Beginning balance3,262  

Table (2)

Accounts ReceivableAccount No - 122
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance1,244  Ending balance1,244
       
 Beginning balance1,244  

Table (3)

SuppliesAccount No - 141
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance800  Ending balance800
       
 Beginning balance800  

Table (4)

Prepaid InsuranceAccount No - 145
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance640  Ending balance640
       
 Beginning balance640  

Table (5)

Office EquipmentAccount No - 181
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance2,100  Ending balance2,100
       
 Beginning balance2,100  

Table (6)

Accumulated DepreciationAccount No - 181
DateDetailsDebit ($) DateDetailsCredit ($)
 Ending balance110  Beginning balance110
       
    Beginning balance110

Table (7)

Accounts PayableAccount No - 202
DateDetailsDebit ($) DateDetailsCredit ($)
 Ending balance1,850  Beginning balance1,850
       
    Beginning balance1,850
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