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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 LOSS) Using the following partial listing of T accounts, prepare closing entries in general journal form dated January 31, 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 ($)
January 31Delivery fees (SE–)4012,200 
 Income Summary (SE+)313 2,200
 (To close the revenue account.)   
     
January 31Income summary (SE–)3132,803 
 Wages expense (SE+)511 1,800
 Advertising expense (SE+)512 80
 Rent expense (SE+)521 500
 Supplies expense (SE+)523 120
 Phone expense (SE+)525 58
 Electricity expense (SE+)533 44
 Insurance expense (SE+)535 30
 Gas and oil expense (SE+)538 38
 Depreciation expense (SE+)541 100
 Miscellaneous expense (SE+)549 33
 (To close the expense accounts.)   
     
January 31SG, Capital (SE+)313603 
 Income Summary (SE–)313 603
 (To close the income summary accounts)   
     
January 31SG, Capital (SE–)311800 
 SG, Drawings (SE+)312 800
 (To close withdrawals account.)   

Table (1)

Working Note:

Calculate the amount of SG capital (transferred).

SG Capital =(Total Revenues-Total Expenses)=($2,200$2,803)=$603(Loss)

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

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

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

SG 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:

Accumulated DepreciationAccount No - 185
DateDetailsDebit ($) DateDetailsCredit ($)
 Ending balance100  Beginning balance100
       
    Beginning balance100

Table (2)

Wages PayableAccount No - 219
DateDetailsDebit ($) DateDetailsCredit ($)
 Ending balance200  Beginning balance200
       
    Beginning balance200

Table (3)

SG CapitalAccount No – 311
DateDetailsDebit ($) DateDetailsCredit ($)
 Income summary603  Beginning balance4,000
 SG Drawings800    
 Ending balance2,597    
    Beginning balance2,597

Table (4)

<
SG DrawingsAccount No - 312
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance800  SG Capital800
 Total800 

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