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Learning module for independent learning 142 a rent

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Learning Module for Independent Learning142A. rent expenseB. unearned revenueC. accumulated depreciation, vehicleD. common stockE. fees revenueF. dividendsG. prepaid insuranceH. accounts payableSolutionA, E, and F are temporary; B, C, D, G, and H are permanent.Let’s now look at how to prepare closing entries.Journalizing and Posting Closing EntriesThe eighth step in the accounting cycle is preparing closing entries, which includes journalizing andposting the entries to the ledger.Four entries occur during the closing process. The first entry closes revenue accounts to the IncomeSummary account. The second entry closes expense accounts to the Income Summary account. Thethird entry closes the Income Summary account to Retained Earnings. The fourth entry closes theDividends account to Retained Earnings. The information needed to prepare closing entries comes fromthe adjusted trial balance.Let’s explore each entry in more detail using Printing Plus’s information fromAnalyzing and RecordingTransactionsandThe Adjustment Processas our example. The Printing Plus adjusted trial balance forJanuary 31, 2019, is presented inFigure 5.4.
Learning Module for Independent Learning143Figure 5.4Adjusted Trial Balance for Printing Plus. (attribution: Copyright Rice University, OpenStax,under CC BY-NC-SA 4.0 license)The first entry requires revenue accounts close to the Income Summary account. To get a zero balance ina revenue account, the entry will show a debit to revenues and a credit to Income Summary. Printing Plushas $140 of interest revenue and $10,100 of service revenue, each with a credit balance on the adjustedtrial balance. The closing entry will debit both interest revenue and service revenue, and credit IncomeSummary.The T-accounts after this closing entry would look like the following.
Learning Module for Independent Learning144Notice that the balances in interest revenue and service revenue are now zero and are ready toaccumulate revenues in the next period. The Income Summary account has a credit balance of $10,240(the revenue sum).The second entry requires expense accounts close to the Income Summary account. To get a zerobalance in an expense account, the entry will show a credit to expenses and a debit to Income Summary.Printing Plus has $100 of supplies expense, $75 of depreciation expenseequipment, $5,100 of salariesexpense, and $300 of utility expense, each with a debit balance on the adjusted trial balance. The closingentry will credit Supplies Expense, Depreciation ExpenseEquipment, Salaries Expense, and UtilityExpense, and debit Income Summary.The T-accounts after this closing entry would look like the following.
Learning Module for Independent Learning145Notice that the balances in the expense accounts are now zero and are ready to accumulate expenses inthe next period. The Income Summary account has a new credit balance of $4,665, which is thedifference between revenues and expenses (Figure 5.5). The balance in Income Summary is the samefigure as what is reported on Printing Plus’s Income Statement.

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Term
Winter
Professor
NoProfessor
Tags
Balance Sheet, Financial Accounting and Management Accounting

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