The following data were taken from the accounting records of Lorenzo Company. Ex
ID: 2380972 • Letter: T
Question
The following data were taken from the accounting records of Lorenzo Company. Except where indicated, the balances are as of December 31, 2011 before closing entries have been made.
Service Revenue - 29,000
Retaines earnings - January 1, 2011 - 37,260
Salaries Exepnse - 12,500
Other Operating expense - 6,700
Common stock - 43,000
Cash Flow from operating activities - 8,400
Dividends - 2,000
insurance expense- 800
Rent Expense - 6,000
Unearned revenue - 3,600
List the accounts that should be closed at the end of 2011.
Explanation / Answer
The only accounts that are closed at the end of a period are income statement accounts. That is, revenues and expenses. Therefore, the revenue and expense accounts above are the ones that should be closed. CAVEAT: Do not be fooled by the account "Unearned Revenue." This account is a bit of a misnomer in that it is actually a liability account and is included on the balance sheet. Unearned Revenue is a liability account because the revenue has not yet been earned and therefore cannot be recognized on the income statement. I won't go into revenue recognition here, because it is an entirely separate discussion altogether. Just know for the purposes of this problem that any account that says "revenue" or "expense," with exception of UNEARNED Revenue, is to be closed. Common Stock and Retained Earnings are balance sheet accounts and Cash Flow from Operating Activities is not an account at all, but rather a figure computed on the Statement of Cash Flows, which also warrants its own entirely separate discussion. Hope that helps. Please rate.
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