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Why does the Capital on Post-closing Trial Balance increase? How to convert Journalize&Post the closing entries...

Why does the Capital on Post-closing Trial Balance increase? How to convert Journalize&Post the closing entries into Post-closing Trail Balance?

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Expert Solution

The balance of Capital will increase in post-closing Trial Balance due to either new issue of stock, or due to declaration of Stock Dividends or increase in retained earnings due to adding of current period's net income after deducting the dividends.

Transactions are prepared as Journal Entries with an equal amount of Debit and Credit for any two or more corresponding accounts with same affect. For example, Purchase of Equipment by Cash, Equipment account will be debited as and Cash is credited with same amount.

These journal entries are posted to respective ledger accounts based on the transactions. With the same example, Equipment account will increase with a debit balance and Cash account will decrease with a credit amount.

The closing balances of accounts respective accounts are shown with individual amounts on the Post Closing Trial Balance. For example, if the amount in the above example is $20,000 then Equipment is shown with $20,000 as an increase on the debit side of the post closing trial balance and Cash account is shown with $20,000 as a decrease on the credit side of the post-closing trial balance.


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