Q10SE - Horngren'S Financial And Managerial Accounting

Question

Brett Teddy Enterprises had the following accounts and normal balances listed on its December 31st adjusted trial balance: Service Revenue, \(21,900; Salaries Expense, \)6,000; Rent Expense, \(4,400; Advertising Expense, \)3,100; and Dividends, $6,900. Journalize the closing entries for Teddy Enterprises.

Step-by-Step Solution

Answer

Closing entries are as follows:

	Journal entry
Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$21,900
	Income Summary		$21,900
	To close revenue.
Dec. 31	Income Summary	$13,500
	Salaries Expense		$6,000
	Rent Expense		$4,400
	Advertising Expense		$3,100
	To close expenses.
Dec. 31	Income Summary	$8,400
	Retained Earnings		$8,400
	To close Income Summary
Dec. 31	Retained Earnings	$6,900	$6,900
	Dividends
	To close Dividends

Step 1: Explanation on Closing Entry

Closing entry is recorded at the end of the period to close balances of permanent account.

Step 2: Calculation of net income

Net income is calculated as follows: 

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{TotalRevenues}-\mathbf{TotalExpenses} \\ \mathbf{=}\mathbf{\$}\mathbf{21}\mathbf{,}\mathbf{900}-\mathbf{\$}\mathbf{13}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{400} \end{gathered}$$