At the end of an accounting year, the revenue, expenses, and owners’ drawing account are closed by a company by transferring their balance to the owners’ capital accounts. This process of closing the accounts is made by preparing the closing entries. To prepare: The closing entries to close the revenue and expense accounts. Also, post these entries to the revenue and expense account.

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Chapter 4, Problem 6BE

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Introduction: At the end of an accounting year, the revenue, expenses, and owners’ drawing account are closed by a company by transferring their balance to the owners’ capital accounts. This process of closing the accounts is made by preparing the closing entries.

To prepare: The closing entries to close the revenue and expense accounts. Also, post these entries to the revenue and expense account.

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Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's expenses, Gross margin, and Net income?

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