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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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