Question

QUESTION 2 The following information is available for Siler Company Sd Bhd.: Credit Debit RM 20,000 Common Stock Retained Earnings RM 30,000 Dividends RM 32,000 Sales 510,000 Sales Returns and Allowances 7,000 20,000 Sales Discounts Cost of Goods Sold 347,000 Freight-out 2,000 Advertising Expense Interest Expense 15,000 19,000 Store Salaries Expense Utilities Expense Depreciation Expense 45,000 18,000 7,000 25,000 Interest Revenue REQUIRED: Using the above information, prepare the closing entries for Siler Company Sdn. Bhd.

Answer 1

Background:

Only revenue, expense, and dividend accounts are closed—not asset, liability, Common Stock, or Retained Earnings accounts. The four basic steps in the closing process are:

• Closing the revenue accounts—transferring the credit balances in the revenue accounts to a clearing account called Income Summary.
• Closing the expense accounts—transferring the debit balances in the expense accounts to a clearing account called Income Summary.
• Closing the Income Summary account—transferring the balance of the Income Summary account to the Retained Earnings account.
• Closing the Dividends account—transferring the debit balance of the Dividends account to the Retained Earnings account.

1. First of all we need to identify all temporary accounts(nominal): Sales, Sales Returns and Allowances, Sales Discount, Cost of Goods sold, Freight out, Advertising Expense, Interest expense, Stores Salary expense, Utility Expense, Depreciation Expense, Interest Revenue, Income Summary Account.

2. Identify the nature of the account Balance:

Sales(CR), Sales Returns and Allowances(DR), Sales Discount(DR), Cost of Goods sold(DR), Freight out(DR), Advertising Expense(DR), Interest expense(DR), Stores Salary expense(DR), Utility Expense(DR), Depreciation Expense(DR), Interest Revenue(CR), Income Summary Account(CR).

3. DO the Opposite to pass the Closing entries:

A. Sales Dr 510,000

Interest Revenue Dr 25,000

Income Summary Cr 535,000

B. Income Summary Dr 27,000

Sales Returns and Allowances Cr 20,000

Sales Discount Cr 7,000

C. Income Summary Dr 453,000

Cost of Goods Sold Cr 347,000

Freight out Cr 2,000

Advertising Expense Cr 15,000

Interest Expense Cr 19,000

Stores Salary expense Cr 45,000

Utility Expense Cr 18,000

Depreciation Expense Cr 7,000

D. Income Summary Dr(535,000-27,000-453,000) 55,000

Retained Earnings Cr   55,000

E. Retained Earnings Dr 32,000

Dividend Cr 32,000