Chapter 6, Problem 6SEB

CLOSING ENTRIES (NET LOSS) Using the following partial listing of T accounts, prepare closing entries in general journal form dated January 31, 20--. Then post the closing entries to the T accounts.

To determine

Prepare closing journal entries in general journal form and post those entries to the T accounts.

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to permanent account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Prepare the closing entries.

Date	Accounts and Explanation	Account Number	Debit  ($)	Credit ($)
June 30	Referral fees (SE–)	401	2,813
	Income Summary (SE+)	313		2,813
	(To close the revenue account.)
June 30	Income summary (SE–)	313	2,987
	Wages expense (SE+)	511		1,080
	Advertising expense (SE+)	512		34
	Rent expense (SE+)	521		900
	Supplies expense (SE+)	523		322
	Phone expense (SE+)	525		133
	Utilities expense (SE+)	533		102
	Insurance expense (SE+)	535		120
	Gas and oil expense (SE+)	538		88
	Depreciation expense (SE+)	541		110
	Miscellaneous expense (SE+)	549		98
	(To close the expense accounts.)
June 30	RZ, Capital (SE+)	313	174
	Income Summary (SE–)	313		174
	(To close the income summary accounts)
June 30	RZ, Capital (SE–)	311	2,000
	RZ, Drawings (SE+)	312		2,000
	(To close withdrawals account.)

Table (1)

Working Note:

Calculate the amount of RZ capital (transferred).

$\begin{array}{c}\text{RZ Capital =}\left(\begin{array}{l}\text{Total Revenues}\text{-}\\ \text{Total Expenses}\end{array}\right)\\ \text{=}\left(\text{\$2,813}-\text{\$2,987}\right)\\ \text{=\$174}\left(\text{Loss}\right)\end{array}$

Revenue account: In this closing entry, the referral fees account is closed by transferring the amount of referral fees account to Income summary account in order to bring the revenue account balance to zero. Hence, debit referral fees account and credit Income summary account.

Expense account: In this closing entry, all expense accounts are closed by transferring the amount of total expense to the Income summary account in order to bring the expense account balance to zero. Hence, debit the Income summary account and credit all expenses account.

Income summary account: Income summary account is a temporary account. This account is debited to close the net income value to RZ capital account.

RZ capital is a component of stockholders’ equity account. The value of RZ capital increased because net income is transferred. Therefore, it is credited.

Withdrawals account: RZ capital is a component of owner’s equity. Thus, owners ‘equity is debited since the capital is decreased on owners’ drawings.

RZ withdrawals are a component of owner’s equity. It is credited because the balance of owners’ withdrawals account is transferred to owners ‘capital account.

T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

Posting the closing entries to the T- account:

Accumulated Depreciation					Account No – 181.1
Date	Details	Debit ($)		Date	Details	Credit ($)
	Ending balance	110			Beginning balance	110
					Beginning balance	110

Table (2)

Wages Payable					Account No - 219
Date	Details	Debit ($)		Date	Details	Credit ($)
	Ending balance	260			Beginning balance	260
					Beginning balance	260

Table (3)

RZ Capital					Account No – 311
Date	Details	Debit ($)		Date	Details	Credit ($)
	Income summary	174			Beginning balance	6,000
	RZ Drawings	2,000
	Ending balance	3,826
					Beginning balance	3,826

Table (4)

SG Drawings					Account No - 312
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	2,000			RZ Capital	2,000
	Total	2,000			Total	2,000

Table (5)

Income Summary					Account No - 313
Date	Details	Debit ($)		Date	Details	Credit ($)
	Total expense	2,987			Referral fees	2,813
					RZ Capital	174
	Total	2,987			Total	2,987

Table (6)

Referral Fees					Account No - 401
Date	Details	Debit ($)		Date	Details	Credit ($)
	Income summary	2,813			Beginning balance	2,813
	Total	2,813			Total	2,813

Table (7)

Wages Expense					Account No - 511
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	1,080			Income summary	1,080
	Total	1,080			Total	1,080

Table (8)

Advertising Expense					Account No - 512
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	34			Income summary	34
	Total	34			Total	34

Table (9)

Rent Expense					Account No - 521
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	900			Income summary	900
	Total	900			Total	900

Table (10)

Supplies Expense					Account No - 524
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	322			Income summary	322
	Total	322			Total	322

Table (11)

Phone Expense					Account No - 525
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	133			Income summary	133
	Total	133			Total	133

Table (12)

Utilities Expense					Account No - 533
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	102			Income summary	102
	Total	102			Total	102

Table (13)

Insurance Expense					Account No - 535
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	120			Income summary	120
	Total	120			Total	120

Table (14)

Gas and Oil Expense					Account No - 538
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	88			Income summary	88
	Total	88			Total	88

Table (15)

Depreciation Expense					Account No - 541
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	110			Income summary	110
	Total	110			Total	110

Table (16)

Miscellaneous Expense					Account No - 549
Date	Details	Debit ($)		Date	Details	Credit ($)
	Beginning balance	98			Income summary	98
	Total	98			Total	98

Table (17)