Question

Preparing Closing Entries

The following selected accounts and amounts are from the adjusted trial balance for Seattle Inc.

Sales	$192,500	Cost of goods sold	$92,750
Service revenue	3,500	Interest expense	7,000
Operating expenses	42,000	Dividends	19,250
Income tax expense	8,750

Required

Prepare the closing entries for revenues, expenses, and dividends. Use the Income Summary account to close income statement amounts.

General Journal
Account Name	Dr.	Cr.
	Answer	Answer
Service Revenue	Answer	Answer
	Answer	Answer
To close revenues to income summary
	Answer	Answer
Operating Expenses	Answer	Answer
Income Tax Expense	Answer	Answer
Costs of Goods Sold	Answer	Answer
AnswerRetained EarningsDividendsCommon StockInterest RevenueSalesService RevenueSalesService RevenueInterest ExpenseIncome Tax ExpenseOperating ExpensesIncome Summary	Answer	7,000
To close expenses to income summary
	Answer	Answer
	Answer	Answer
To close income summary to retained earnings
	Answer	Answer
	Answer	Answer
To close dividends to retained earnings

Answer 1

Closing entries in the books of Seattle Inc.

1. Close Revenue Account :

Clear the balance of revenue account by debiting revenue and crediting income summary account.

Particulars	Debit ($)	Credit ($)
Format:
Revenue A/C Dr	xxx
To Income Summary A/C		xxx
For the Question:
Sales A/C Dr	192,500
Service Revenue A/C Dr	3,500
To Income Summary A/C		196000

2. Close Expense Account :

Clear the balance in the expense accounts by debiting income summary account and crediting the Corresponding Expense account.

Particulars	Debit ($)	Credit ($)
Format:
Income Summary A/C Dr	xxx
To Expenses A/C		xxx
For the Question:
Income Summary A/C Dr	150,500
To Cost of goods Sold A/C		92,750
To Interest Expense A/C		7,000
To Operating Expense A/C		42,000
To Income Tax Expense A/C		8,750

3. Close Income Summary Account :

Close the income summary account by debiting the Income Summary account and Crediting Retained earnings.

Particulars	Debit ($)	Credit ($)
Format:
Income Summary A/C Dr	xxx
To Retained Earnings		xxx
For the Question:
Income Summary A/C Dr	45,500
To Retained Earnings		45,500

4. Close Dividend account :

Close the dividend account by debiting retained earnings and crediting Dividends account.

Particulars	Debit ($)	Credit ($)
Format:
Retained Earnings A/C Dr	xxx
To Dividends A/C		xxx
For the Question:
Retained Earnings A/C Dr	19,250
To Dividends A/C		19,250