Explain the closing entry process and prepare the closing entries in journal for
ID: 2376734 • Letter: E
Question
Explain the closing entry process and prepare the closing entries in journal form based on the information in question 1.
POST INC. BANK RECONCILIATION
Cash balance per bank $8,200
Cash balance per books (general ledger) $6,500
Outstanding checks $2,460
Check mailed to the bank for deposit had not reached the bank by the statement date. $500
NSF check returned by the bank for accounts receivable $100
July interest earned on the bank statement $20
Check no. 700 for misc. expense cleared the bank for $200; erroneously recorded in our books for $20
~ Prepare a bank reconciliation.
~ Shown the accounting entries that must be made by
~ Matrix Inc. in journal entry and T-Account format.
Following is the adjusted trial balance of Post Company. Based on this information prepare a Balance Sheet, Income Statement and Statement of Retained Earnings.
POST COMPANY ADJUSTED TRIAL BALANCE
Debit Credit
Cash 80,000
Accounts Receivable 12,000
Prepaid Insurance 2,000
Equipment 4,000
Accumulated Depreciation 100
Supplies 400
Accounts Payable 800
Wages Payable 200
Unearned Revenue 1,200
Contributed Capital 82,400
Retained Earnings 0
Sales 16,000
Gas Expense 200
Supply Expense 400
Insurance Expense 400
Depreciation Expense 100
Wage Expense 200
Dividends 1,000
100,700 100,700
Explanation / Answer
Closing entries are journal entries made at the end of an accounting period which transfer the balances of temporary accounts to permanent accounts. Closing entries are based on the account balances in an adjusted trial balance.
Temporary accounts include:
Revenue, Income and Gain Accounts
Expense and Loss Accounts
Dividend, Drawings or Withdrawals Accounts
Income Summary Account
The permanent account to which balances are transferred depend upon the type of business. In case of a company, retained earnings account, and in case of a firm or a sole proprietorship, owner's capital account receives the balances of temporary accounts.
Income summary account is a temporary account which facilitates the closing process.
Closing entries are better explained via an example.
Example
The following example shows the closing entries based on the adjusted trial balance of Company A.
Note Date Account Debit Credit
1 Jan 31 Service Revenue 85,600
Income Summary 85,600
2 Jan 31 Income Summary 77,364
Wages Expense 38,200
Supplies Expense 18,480
Rent Expense 12,000
Miscellaneous Expense 3,470
Electricity Expense 2,470
Telephone Expense 1,494
Depreciation Expense 1,100
Interest Expense 150
3 Jan 31 Income Summary 8,236
Retained Earnings 8,236
4 Jan 31 Retained Earnings 5,000
Dividend 5,000
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