Question

Exercise 3-16

Presented below are selected account balances for Homer Winslow Co. as of December 31, 2014.

Inventory 12/31/14		$60,180		Cost of Goods Sold		$225,870
Common Stock		75,870		Selling Expenses		17,400
Retained Earnings		48,850		Administrative Expenses		39,150
Dividends		19,080		Income Tax Expense		30,180
Sales Returns and Allowances		13,650
Sales Discounts		15,290
Sales Revenue		411,940

Prepare closing entries for Homer Winslow Co. on December 31, 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Answer 1

Concepts and reason

Transactions: Transactions are the events that happen in a business for a particular period. These transactions form base for the accounting. These transactions are recorded in the books of accounts which help to prepare the ledger accounts.

Journal entries: The transactions of an organization are recorded in the books of accounts through journal entries. Analyzing and journalizing of transactions is the second step in the accounting cycle. These journal entries are used to post the transactions into ledger.

Accounting cycle: Accounting cycle is a process whereby the financial statements are prepared for a particular period. Adjusted trial balance forms base for the preparation of financial statements. It involves the following steps:

Step-1: Calculate the beginning account balances.

Step-2: Analyze the transactions and then journalize them.

Step-3: Post the journal entries to respective accounts.

Step-4: Unadjusted trial balance need to prepared, by computing the unadjusted balance in the account.

Step-5: Prepare worksheet.

Step-6: Adjusting entries need to journalized and posted.

Step-7: Prepare the adjusted trial balance.

Step-8: Prepare the financial statements.

Step-9: Closing entries need to journalized and posted.

Step-10: Prepare the post-closing trial balance.

Fundamentals

Closing entries: Closing entries are the entries passed at the end of a particular period to close all temporary accounts. Temporary accounts are the accounts whose balance at the end of particular period are meant to be closed without being carry forward to the future periods.

Revenue: Revenue is the amount earned or to be earned by a particular organization by sale of goods or by providing sale of services. It will have a credit balance and it is part of the income statement.

Expenses: Expense is the amount incurred or to be incurred by a particular organization for earning revenue. It will have a debit balance and it is part of the income statement.

Prepare the closing entry to record the closure of revenue account as shown below:

Prepare the closing entry to record the closure of expense accounts as shown below:

Working Note: Calculate the total of expenses as shown below:

Calculate the balance of income summary account as shown below:

Prepare the closing entry to record the closure of income summary account.

Prepare the closing entry to record the closure of dividends account as shown below:

Ans: