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Chapter05 Closing Entries 22022023 034830pm
Chapter05 Closing Entries 22022023 034830pm
Chapter
5
The Accounting Cycle
Reporting Financial Results
Net
Net income
income also
also appears
appears on
on the the
Statement
Statement of
of Retained
Retained Earnings.
Earnings.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
5-4
Statement
Statement of
of Retained
Retained Earnings
Earnings
•Business •Dividends
Earnings •Business
Losses
Assets
Cash $ 3,925
Accounts receivable 75
Tools & equipment $ 2,650
Less: Accumulated depreciation 50 2,600
Truck $ 15,000
Less: Accumulated depreciation 250 14,750
Total assets $ 21,350
Liabilities & Stockholders' Equity
Liabilities:
Notes payable $ 13,000
Accounts payable 150
Total liabilities $ 13,150
Stockholders' equity:
Capital stock $ 8,000
Retained earnings 200
Total stockholders' equity 8,200
Total liabilities & stockholders' equity $ 21,350
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
5-7
Preparing
Preparing Financial
Financial Statements
Statements
JJ's Lawn Care Service JJ's Lawn Care Service
Balance Sheet Income Statement
May 31, 2007 For the month ending May 31, 2007
Sales revenue $ 750
Assets Operating expenses:
Cash $ 3,925 Gasoline expense $ 50
Accounts receivable 75 Depreciation: tools & equipment 50
Tools & equipment $ 2,650 Depreciation: truck 250 350
Less: Accumulated depreciation 50 2,600 Net income $ 400
Truck $ 15,000
Less: Accumulated depreciation 250 14,750
Total assets $ 21,350
Liabilities & Stockholders' Equity
Liabilities:
Notes payable $ 13,000
Accounts payable 150
Total liabilities $ 13,150
Stockholders' equity:
Capital stock $ 8,000
Retained earnings 200
Total stockholders' equity 8,200
Total liabilities & stockholders' equity $ 21,350
Closing
Closing the
the Temporary
Temporary Accounts
Accounts
The closing process
Close Revenue accounts
gets the temporary
to Income Summary.
accounts ready for the
Close Expense accounts next accounting
to Income Summary. period.
Close Dividends to
Retained Earnings.
Closing
Closing the
the Temporary
Temporary Accounts
Accounts
JJ's Lawn Care Service
Adjusted Trial Balance
May 31, 2007
Cash $ 3,925
Accounts receivable 75
Tools & equipment 2,650
Accum. depreciation: tools & eq. $ 50
Truck 15,000
Accum. depreciation: truck 250
Notes payable 13,000 Let’s
Let’s prepare
prepare the
the
Accounts payable 150
Capital stock 8,000
closing
closing entries
entries
Dividends 200 for
for JJ’s
JJ’s Lawn
Lawn
Sales revenue 750
Gasoline expense 50 Care
Care Service.
Service.
Depreciation exp.: tools & eq. 50
Depreciation exp.: truck 250
Total $ 22,200 $ 22,200
Closing
Closing Entries
Entries for
for Revenue
Revenue Accounts
Accounts
Since
Since Sales
Sales Revenue
Revenue hashas aa credit
credit balance,
balance, the
the
closing
closing entry
entry requires
requires aa debit
debit to
to the
the Sales
Sales Revenue
Revenue
account.
account.
GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
May 31 Sales Reveune 750
Income Summary 750
To close the revenue account.
Closing
Closing Entries
Entries for
for Revenue
Revenue Accounts
Accounts
750
Closing
Closing Entries
Entries for
for Expense
Expense Accounts
Accounts
Since
Since expense
expense accounts
accounts have
have aa debit
debit balance,
balance, the
the
closing
closing entry
entry requires
requires aa credit
credit to
to the
the expense
expense
accounts.
accounts.
GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
May 31 Income Summary 350
Gasoline Expense 50
Depreciation Exp.: Tools & Equipment 50
Depreciation Exp.: Truck 250
To close the expense accounts. © The McGraw-Hill Companies, Inc., 2008
McGraw-Hill/Irwin
5-14
Closing
Closing Entries
Entries for
for Expense
Expense Accounts
Accounts
Gasoline Exp.
50 50
-
Income Summary
Depr. Exp.: Tools & 350 750
Equipment
50 50
-
Closing
Closing the
the Income
Income Summary
Summary Account
Account
Since
Since Income
Income Summary
Summary hashas aa $400
$400 credit
credit balance,
balance,
the
the closing
closing entry
entry requires
requires aa debit
debit to
to Income
Income
Summary.
Summary.
GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
May 31 Income Summary 400
Retained Earnings 400
To close Income Summary.
Closing
Closing the
the Income
Income Summary
Summary Account
Account
Income Summary
350 750
Retained Earnings 400
400
-
400
The balance in Income
Summary is now zero.
Closing
Closing the
the Dividends
Dividends Account
Account
Since
Since the
the Dividends
Dividends account
account has
has aa debit
debit balance,
balance,
the
the closing
closing entry
entry requires
requires aa credit
credit to
to the
the Dividends
Dividends
account.
account.
GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
May 31 Retained Earnings 200
Dividends 200
To close the Dividends account.
Closing
Closing the
the Dividends
Dividends Account
Account
- 200