
Concept explainers
(a)
Perpetual inventory system
Perpetual inventory system refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time
Adjusting entries are the
Accounting rules for journal entries:
- To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
- To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.
Closing entries
Closing entries are those journal entries which are passed to transfer the balances of temporary accounts to the permanent accounts. These are passed at the end of the accounting period, to transfer the final balance.
Rules for closing entries:
- Debit the account: All temporary accounts with credit balances.
- Credit the account: All temporary accounts with debit balances
To record: Adjusting entry for inventory of H Company.
(b)
To record: Closing entries in the books of H Company.

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Chapter 5 Solutions
Accounting Principles, Volume 2: Chapters 13 - 26
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