Question

Green Valley Company prepared the following trial balance at the end of its first year of operations ending December 31. To simplify the case, the amounts given are in thousands of dollars. Account Titles Cash Accounts receivable Prepaid insurance Machinery Accumulated depreciation Accounts payable UNADJUSTED Debit Credit 20 17 12 79 13 Wages payable 5 59 Income taxes payable Common stock (5,000 shares) Additional paid-in capital Retained earnings Revenues (not detailed) Expenses (not detailed) Totals 11 89 27 166 166 Other data not yet recorded at December 31 include a. Insurance expired during the current year, $9. b. Wages payable, $11. c. Depreciation expense for the current year, $13. d. Income tax expense, $5. Required: 2. Using the adjusted balances, give the closing entry for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)

Answer 1

Answer

--Requirement asked: Closing entries

	Accounts title	Debit	Credit
[1]	Revenues	$89
	Income Summary		$89
	(to close revenue)
[2]	Income Summary	$65
	Expenses [27+9+11+13+5]		$65
	(to close expenses)
[3]	Income Summary	$24
	Retained earnings ($89 - 65)		$24
	(to close Incomer summary - Net Income)

General Concepts regarding Closing entries:

#1:Temporary accounts, like Revenue accounts, have normal CREDIT balances, and hence they are closed by DEBITING the account.

#2:Temporary accounts, like Expense accounts or Contra revenue accounts, have normal DEBIT balances, and hence they are closed by CREDITING the account.

#3: In case of Net Income, Income Summary account has a CREDIT balance, and in order to close the Income Summary account, we DEBIT the account, and Credit Retained earnings/Owner's Capital

#4: In case of Net Loss, Income Summary account has a DEBIT balance, and in order to close the Income Summary account, we CREDIT the account, and Debit Retained earnings/Owner's Capital

#5: Dividend accounts have normal DEBIT balance, and are closed by CREDITING them, and debiting Retained earnings account.

#6: Drawings or Withdrawal account have a normal DEBIT balance, and hence closed by CREDITING the account, and debiting Owner's Capital account.