Question

On December 31, 2019, the Income Statement section of the worksheet for Capeletti Distributors contained the following information.

Income Statement Section   Debit      Credit     
Income Summary   $   39,200      $   42,500     
Sales               257,500     
Sales Returns and Allowances      4,200              
Sales Discounts      3,200              
Interest Income               200     
Purchases      135,000              
Freight In      2,500              
Purchases Returns and Allowances               2,300     
Purchases Discounts               1,590     
Rent Expense      8,800              
Utilities Expense      2,990              
Telephone Expense      1,600              
Salaries Expense      66,700              
Payroll Taxes Expense      5,330              
Supplies Expense      1,760              
Depreciation Expense      2,800              
Interest Expense      400              
Totals   $   274,480      $   304,090     

Assume further that the owner of the firm is John Capeletti and that the John Capeletti, Drawing account had a balance of $26,500 on December 31, 2019.

Prepare the entries that should be made in the general journal to close the revenue, cost of goods sold, expense, and other temporary accounts.

Answer 1

Answer

--Required journal entries [closing]

Date	General Journal	Debit	Credit
31-Dec-19	Sales	$257,500
	Interest Income	$200
	Purchase return & Allowances	$2,300
	Purchase Discounts	$1,590
	Income Summary		$261,590
	(to close credit balances)
31-Dec-19	Income Summary	$235,280
	Sales return & Allowances		$4,200
	Sales Discounts		$3,200
	Purchases		$135,000
	Freight In		$2,500
	Rent Expense		$8,800
	Utilities expense		$2,990
	Telephone expense		$1,600
	Salaries expense		$66,700
	Payroll Taxes expenses		$5,330
	Supplies expense		$1,760
	Depreciation expense		$2,800
	Internet expense		$400
	(to close debit balances)
31-Dec-19	Income Summary [42500+261590-235280-39200]	$29,610
	John Capeletti, Capital		$29,610
	(to close Net Income)
31-Dec-19	John Capeletti, Capital	$26,500
	John Capeletti, Drawings		$26,500

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.