ADM 1340 Lecture Notes - Lecture 8: Retained Earnings, Net Income

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ADM 1340 Lecture Notes - Lecture 7: Accrual, Deferral, Financial Statement

ADM 1340 Lecture Notes - Lecture 8: Retained Earnings, Net Income

ADM 1340 Lecture 9: ADM 1340 - Lecture 9 - Merchandising Operations

Document Summary

Accounts on the statement of financial position are permanent accounts, and they are never closed. Their balances are carried forward from one period to the next. Accounts on the statement of income are temporary accounts and are closed at the end of the period such that they are rest to zero. Net income or net loss is recorded into retained earnings. The four basic steps in the closing process are : accounts to a clearing account called income summary. Closing the revenue accounts transferring the credit balances in the revenue. Closing the expense accounts transferring the debit balances in the expense. Closing the income summary account transferring the balance of the income. Closing the dividends account transferring the debit balance of the dividends accounts to a clearing account called income summary. Summary account to the retained earnings account. account to the retained earnings account. https://www. principlesofaccounting. com/chapter-4/the-accounting-cycle-and-closing-process/ Tips on how to close entries at the end of an accounting period.

Related Questions

Chandler, Inc. is owned by Roscoe Chandler and providesappraisal services to individuals and companies wishing to purchaseand sell fine art. Chandler, Inc. began business on January 1,2016, and is just completing its first year of business. Roscoeasks for your help in completing the accounting cycle for thecompany by assisting with the closing process.

Before the closing entries are made, you begin with an adjustedtrial balance. The closing entries are essentially the link fromthe adjusted trial balance to the post-closing trial balance.

Chandler, Inc.

ADJUSTED TRIAL BALANCE

December 31, 2016

	ACCOUNTTITLE	DEBIT	CREDIT
1	Cash	76,000.00
2	Accounts Receivable	29,000.00
3	Prepaid Insurance	16,000.00
4	Equipment	60,000.00
5	Accumulated Depreciation-Equipment		40,000.00
6	Accounts Payable		6,000.00
7	Salaries Payable		8,000.00
8	Income Taxes Payable		4,000.00
9	Common Stock		2,000.00
10	Retained Earnings		18,000.00
11	Dividends	5,000.00
12	Income Summary
13	Fees Earned		175,600.00
14	Rent Revenue		92,000.00
15	Interest Revenue		17,200.00
16	Salaries Expense	71,000.00
17	Selling Expense	25,600.00
18	Income Taxes Expense	15,000.00
19	Depreciation Expense-Equipment	47,200.00
20	Insurance Expense	17,000.00
21	Miscellaneous Expense	1,000.00
22	Totals	362,800.00	362,800.00

The final step of the accounting cycle is the closing process.The main goal of this stage of the cycle is to ensure that thebalance of each temporary account is returned to zero and that netincome is transferred to the retained earnings account. The firststep in successfully undertaking the closing process is tounderstand the difference between a temporary account and apermanent account. Roscoe has some questions about the process.

Answer questions (1) - (3) below.

1. If a temporary account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?

2. If a permanent account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?

3. Roscoe will be preparing his yearly financial statementsafter completing Chandler, Inc.âs closing process, and is asomewhat confused about the characteristics of the accounts on hisChart of Accounts. He has started by creating the chart below, andasks for your help in completing it. For each account or type ofaccount listed, choose all descriptions that apply.

Temporary Account

Permanent Account

Closed to Income SummaryAccount

Yes

Revenues

Asset accounts

Retained Earnings account

Expenses

Liability accounts

Dividends account

Roscoe has attempted to prepare the closing entries forChandler, Inc. on this panel. Heâs not sure if heâs entered thejournal entries correctly, and asks you to review them. You findthat two of the entries are correct, but two are incorrect.

Determine which entries are incorrect, and enter all four of theclosing entries for Chandler, Inc. as of Dec. 31 on the Journalpanel.

PAGE 25

JOURNAL

	DATE	DESCRIPTION	DEBIT	CREDIT
1		Closing Entries
2	Dec. 31	Income Summary	284,800.00
3		Fees Earned		175,600.00
4		Rent Revenue		92,000.00
5		Interest Revenue		17,200.00
6	31	Income Summary	176,800.00
7		Salaries Expense		71,000.00
8		Selling Expense		25,600.00
9		Income Taxes Expense		15,000.00
10		Depreciation Expense-Equipment		47,200.00
11		Insurance Expense		17,000.00
12		Miscellaneous Expense		1,000.00
13	31	Retained Earnings	461,600.00
14		Income Summary		461,600.00
15	31	Retained Earnings	5,000.00
16		Dividends		5,000.00

purpleporcupine232

1. Closing entries are journalized and posted

a. before the financial statements are prepared.

b. after the financial statements are prepared.

c. at management's discretion.

d. at the end of each interim accounting period.

2. Using the following income statement for the month of June 2018 of Delgado Enterprises to answer the following question.

Revenues                                                    $7,000
Expenses:
       Wages Expense                   $2,000
       Rent Expense                         1,000
       Supplies Expense                      300
       Advertising Expense                  200
       Insurance Expense                    100
           Total expenses                                  3,600
                                                                   ______
       Net income                                          $3,400

The entry to close the revenue account includes a:

a. debit to Retained Earnings for $7,000.

b. credit to Dividend for $7,000.

c. debit to Income Summary for $7,000.

d. credit to Income Summary for $7,000.

blushfox713

Listed below are account balances (in $millions) taken from therecords of Symphony Stores. All of these are permanent accounts,except the last two that have yet to be closed. The installmentreceivables are current. Symphony uses a perpetual inventorysystem.

	Debit	Credit
Accounts receivable-trade	680
Building and equipment	920
Cash-checking	34
Installment receivables	50
Interest receivable	30
Inventory	16
Land	150
Note receivable Long-term	450
Petty cash funds	5
Prepaid expenses (for coming year)	20
Supplies	8
Trademark	40
Accounts payable-trade		560
Accumulated depreciation		80
Additional paid-in capital, common		485
Allowance for uncollectable accounts		20
Cash dividends payable		30
Common stock, at par		15
Income tax payable		65
Notes payable (long-term)		800
Retained earnings		48
Unearned revenues		40
Cash dividends declared-common	120
Income summary		380

TOTALS	2523	2523

What would Symphony report as total assets? Hint: Don t forgetto deduct the contra assets.

What would Symphony report as total shareholders' equity? Hint:You will need to deduct dividends.

amaranthhare726

ADM 1340 Lecture Notes - Lecture 8: Retained Earnings, Net Income

ADM 1340 Lecture Notes - Lecture 7: Accrual, Deferral, Financial Statement

ADM 1340 Lecture Notes - Lecture 8: Retained Earnings, Net Income

ADM 1340 Lecture 9: ADM 1340 - Lecture 9 - Merchandising Operations

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