Preparing and Analyzing Closing Entries Sparrow Company had the following adjusted trial balance at December 31. Sparrow Company Adjusted Trial Balance December 31 Debit Credit Cash $3,150 Accounts Receivable 5,650 Prepaid Insurance 4,480 Equipment 42,000 Accumulated Depreciation (Equipment) $24,000 Accounts Payable 2,800 Salaries Payable 4,450 Unearned Service Revenue 3,875 Common Stock 8,000 Retained Earnings 2,255 Dividends Declared 10,500 Service Revenue 99,600 Salaries Expense 49,400 Rent Expense 17,250 Insurance Expense 2,200 Depreciation Expense 4,950 Income Taxes Expense 5,400 Totals 144,980 144,980 Required: Question Content Area 1. Prepare the closing entries for Sparrow at December 31. If an amount box does not require an entry, leave it blank. Dec. 31 - Select - - Select - - Select - - Select - Dec. 31 - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Dec. 31 - Select - - Select - - Select - - Select - Question Content Area 2. How does the closing process affect retained earnings? The closing process temporary account balances to retained earnings. If the accounts were not closed, and the accounting equation would not be in balance. In addition, these accounts would accumulate, making it difficult to identify when the effect of a business activity occurred.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
-
Preparing and Analyzing Closing Entries
Sparrow Company had the following adjusted
trial balance at December 31.Sparrow Company
Adjusted Trial Balance
December 31Debit Credit Cash $3,150 Accounts Receivable 5,650 Prepaid Insurance 4,480 Equipment 42,000 Accumulated Depreciation (Equipment)$24,000 Accounts Payable 2,800 Salaries Payable 4,450 Unearned Service Revenue 3,875 Common Stock 8,000 Retained Earnings 2,255 Dividends Declared 10,500 Service Revenue 99,600 Salaries Expense 49,400 Rent Expense 17,250 Insurance Expense 2,200 Depreciation Expense 4,950 Income Taxes Expense 5,400 Totals 144,980 144,980 Required:
Question Content Area
1. Prepare the closing entries for Sparrow at December 31. If an amount box does not require an entry, leave it blank.
Dec. 31 - Select - - Select - - Select - - Select - Dec. 31 - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Dec. 31 - Select - - Select - - Select - - Select - Question Content Area
2. How does the closing process affect retained earnings?
The closing processtemporary account balances to retained earnings. If the accounts were not closed,and theaccounting equation would not be in balance. In addition, theseaccounts would accumulate, making it difficult to identify when the effect of a business activity occurred.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
