Accounting Made Simple 17

Question 1

1. To close out the books for the year, with the TRIAL BALANCE SHOWING the following balances:

Answer 1

Cash…………………70k
Acc Rec……………..30k
Investments…………50k
Acc Pay…………………..10k
Common Stock…………..40k
Retained Earnings……….45k
Sales……...………………200k
Gain on sale of Invest……10k
Rent Expense………30k
Wages Exp             110k
Advert Exp…………. 15k
TOTAL………………305.…305K

Question 2

2. To close out the books, the following journal entries are made. For SALES:

Answer 2

Sales…………..200k

Inc Summary…….200k

Question 3

3. For GAIN ON SALE OF INVESTMENTS:

Answer 3

Gain on Sale of Inv……..10k
Income Summary………..10k

+++++++++++++++++++++++++++

Question 4

4. For RENT EXPENSE:

Answer 4

Income Summary……….30k
Rent Expense……………30k

””””””””””””””””””””””””””””””””””””””

Question 5

5. For WAGES EXPENSE

Answer 5

Income Summary……..110k
Wages Expense………..110k

Question 6

6. For ADVERTISING EXPENSE:

Answer 6

Income Summary……….15k
Advertising Expense…….15k

••••••••••••••••••••••••••••••••••••••••••••••

Question 7

7. After all the TEMPORARY ACCOUNTS have been CLOSED, what balance will the INCOME SUMMARY account have?

Answer 7

It will have a CREDIT BALANCE of 55k, which represents the firm’s 55K NET INCOME over the period.

Question 8

8. What is the entry to CLOSE OUT the INCOME SUMMARY ACCOUNT?

Answer 8

Income Summary……..55k
Retained Earnings……..55k

===========================

Question 9

9. What is the purpose of using an INCOME SUMMARY account, rather than closing out all of the Income Statement accounts DIRECTLY to RETAINED EARNINGS?

Answer 9

to keep the Retained Earnings account from getting cluttered from numerous journal entries at the end of each accounting period.