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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Closing entries using periodic inventory system

United Rug Company is a small rug 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
Freight in 17,000
Merchandise Inventory, January 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
Pat Kirwan, Drawing 65,000
Salaries Expense 375,000
Sales 2,220,000

The estimated cost of merchandise returns from December sales is $20,000. Journalize the closing entries on December 31.

To determine

Closing entries: These 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

Record the closing entry for revenues and expenses.

Date Accounts and Explanation Post Ref Debit ($) Credit ($)
December 31 Merchandise Inventory (December 31) 460,000
Estimated Returns Inventory 20,000
Sales 2,220,000
Purchase Discounts 35,000
Purchase Returns and Allowances 45,000

             Merchandise Inventory

             (January 1)

375,000
             Purchases 1,760,000
             Freight In 17,000
             Salaries Expenses 375,000
             Advertising Expenses 36,000
             Depreciation Expenses 13,000
             Miscellaneous Expense 9,000
             P’s Capital 195,000 (1)
(To close the revenue and expenses accounts.)

Table (1)

Working Note:

P's Capital=[($460,000+$20,000+$2,220,000+$35,000+$45,

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