On December 31, 2007, Bert’s Farm Store had the followingaccount balances in its
ID: 2502278 • Letter: O
Question
On December 31, 2007, Bert’s Farm Store had the followingaccount balances in its accounting system. All year-end adjustmentshad been entered, but the books had not yet been closed.
Bert’s Farm Store
Account Balances beforeClosing
December 31, 2007
Account Balance Account Balance
Cash $700 Sales Revenue $2,200
Merchandise 2,800 Costof Goods Sold 900
Supplies 925 WagesExpense 400
Prepaid Insurance 450 UtilitiesExpense 150
Equipment 3,550 DepreciationExpense 50
Accumulated Depreciation 1,750 InsuranceExpense 100
InterestPayable 150 SuppliesExpense 150
NotesPayable 2,000 InterestExpense 100
Owners’Equity 4,175
A. What is the purpose of closingthe books?
B. Prepare all necessary closingentries.
C. After closing, what is theamount of owners’ equity that will be reported on the balancesheet?
Explanation / Answer
The closing process reduces the balance reduces thebalance of nominal ( temporary ) accounts to zero in order toprepare the accounts for the next period’stransactions.
In the closing process all the revenue and expenseaccount balances are transferred to a clearing account calledIncome summary.
Date
Account Titles&explanation
Debit
Credit
After Closing entries 4175 + 350 = 4525 will be reportedon the Balance Sheet .
Date
Account Titles&explanation
Debit
Credit
31-Dec Sales Revenue 2,200.00 Incomesummary 2,200.00 31-Dec Income Summary 1,850.00 Cost of GoodsSold 900.00 WageExpense 400.00 Utility Expense 150.00 DepreciationExpense 50.00 InsuranceExpense 100.00 SuppliesExpense 150.00 InterestExpense 100.00 31-Dec Income Summary 350.00 Owner'sEquity 350.00Related Questions
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