Management 1A Lecture Notes (4)

Management 1A Lecture Notes (4) - Management 1A Lecture...

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Management 1A Lecture Notes Professor Gardner-Treloar Week 3, Lectures 6-7
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Closing Journal Entries To zero out the temporary equity accounts, treat Drawings, revenue, and expenses as three little buckets to be poured into the larger capital bucket. Permanent accounts Temporary Accounts Assets Revenue Liabilities Expenses Contributed Capital Dividends and Drawings Retained Earnings These are closed/zeroed out to Capital (or These stay on the books Retained Earnings) at year end Income Summary This is a *very* temporary account that is used to close out the other temporary accounts Steps 1) Close out Revenue account to Income Summary Account Dr revenue, Cr income summary Revenue Income Summary 32,000 32,000 32,000 29,154 0 2846 2846 0 2) Close out expense accounts to income summary (close out each expense account) Dr income summary Cr. Salary expense Cr. Rent expense Cr. Electricity expense Cr. Advertising expense Cr. Supply expense Cr. Depreciation expense Salary Expenses Income Summary 32,000 20,300 29,154 2846 2846 0 3) Close out Income Summary to Capital Dr Income Summary, Cr Capital
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Income Summary Capital 32,000 13,000 29,154 2846 2846 700 2846 15,146 0 4) Close out drawings Cr Drawings, Dr Capital Drawings 700 700 0 T-Accounts And Solving for Information Contained Therein Example At 12/31/X1 Equity = 45,000 At 12/31/X2 Assets:Cash 05,900 Liabilities: A/P 05,000 A/R 11,600 Land 40,000 Determining ending owner’s equity Assets=Liabilities + Owner’s Equity Which means Owner’s Equity = Assets – Liability (just think in terms of simple algebraic equations) In this case, 59,000+11.600+40,000=5000+OE 57,500=5000+OE OE=52,000 Case #1
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