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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 ($)
June 30Referral fees (SE–)4012,813 
 Income Summary (SE+)313 2,813
 (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+)523 322
 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+)541 110
 Miscellaneous expense (SE+)549 98
 (To close the expense accounts.)   
     
June 30RZ, Capital (SE+)313174 
 Income Summary (SE–)313 174
 (To close the income summary accounts)   
     
June 30RZ, Capital (SE–)3112,000 
 RZ, Drawings (SE+)312 2,000
 (To close withdrawals account.)   

Table (1)

Working Note:

Calculate the amount of RZ capital (transferred).

RZ Capital =(Total Revenues-Total Expenses)=($2,813$2,987)=$174(Loss)

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

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

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

RZ 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 – 181.1
DateDetailsDebit ($) DateDetailsCredit ($)
 Ending balance110  Beginning balance110
       
    Beginning balance110

Table (2)

Wages PayableAccount No - 219
DateDetailsDebit ($) DateDetailsCredit ($)
 Ending balance260  Beginning balance260
       
    Beginning balance260

Table (3)

RZ CapitalAccount No – 311
DateDetailsDebit ($) DateDetailsCredit ($)
 Income summary174  Beginning balance6,000
 RZ Drawings2,000    
 Ending balance3,826    
    Beginning balance3,826

Table (4)

SG DrawingsAccount No - 312
DateDetailsDebit ($) DateDetailsCredit ($)
 Beginning balance2,000  RZ Capital2,000
 Total2,000 

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