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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) Using the following partial listing of T accounts, prepare closing entries in general journal form dated April 30, 20--. Then post the closing entries to the T accounts.

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To determine

Prepare closing journal entries in general journal form 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 ($)
May 31Lawn service fees (SE–)4015,000 
 Income Summary (SE+)313 5,000
 (To close the revenue account.)   
     
May 31Income summary (SE–)3133,240 
 Wages expense (SE+)511 400
 Advertising expense (SE+)512 600
 Travel expense (SE+)515 100
 Supplies expense (SE+)524 900
 Insurance expense (SE+)535 300
 Gas and oil expense (SE+)538 700
 Postage expense (SE+)536 40
 Miscellaneous expense (SE+)549 200
 (To close the expense accounts.)   
     
May 31Income Summary (SE–)3131,760 
 MT, Capital (SE+)311 1,760
 (To close the income summary accounts)   
     
May 31MT, Capital (SE–)311800 
 MT, Drawings (SE+)312 800
 (To close withdrawals account.)   

Table (1)

Working Note:

Calculate the amount of MT capital (transferred).

MT Capital =(Total Revenues-Total Expenses)=($5,000$3,240)=$1,760

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

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

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

MT 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 balance600  Ending balance600
       
 Beginning balance600  

Table (2)

Accounts ReceivableAccount No - 122
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance1,800  Ending balance1,800
       
 Beginning balance1,800  

Table (3)

Wages PayableAccount No - 219
DateDetailsDebit ($) DateDetailsCredit ($)
 Ending balance500  Beginning balance500
       
    Beginning balance500

Table (4)

MT CapitalAccount No – 311
DateDetailsDebit ($) DateDetailsCredit ($)
 MT Drawings800  Beginning balance8,000
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