Question

Assume your company has the following adjusted account balances at the end of the quarter for all dividend, revenue, and expense accounts. All accounts have a normal debit or credit balance. Financial statements are prepared on a quarterly basis.

Dividends: $14,000

Services Revenue: $100,000

Rent Expense: $9,000

Salaries Expense: $23,000

Utilities Expense: $6,000

Depreciation Expense - Furniture: $18,000

1. Prepare the four closing entries required to close the books at the end of the quarter. Be sure to clearly number each entry and clearly identify debits and credits by using the following format (these sample entries are not related to closing entries and are simply here as a formatting example):

Entry #1 Dr. Cash

Cr. Accounts Receivable

Entry #2 Dr. Wages Expense

Cr. Wages Payable

2. Are the financial statements prepared before or after the closing entries? Use several sentences to explain your answer.

3. Why do companies close the books at the end of the reporting period?

Answer 1

1 JOURNAL ENTRIES

PARTICULARS	DEBIT($)	CREDIT($)
1. DIVIVDEND A/C DR.    SERVICE REVENUE A/C DR TO INCOME SUMMARY A/C	14000 100000 -	- - 114000
. INCOME SUMMARY A/C DR. TO RENT EXPENSE A/C TO SALARY A/C TO UTILITIES EXPENSE A/C TO DEPRICIATION ON FURNITURE A/C	56000 - - - -	- 9000 23000 6000 18000
3. INCOME SUMMARY A/C DR TO CAPITAL A/C	58000 -	- 58000
4.CAPITAL A/C DR TO DRAWING A/C	- -	- -

2.Adjustment entries are required to prepare at the end of the accounting year.

• They must be journalised before preparation of financial statements and incomne tax return.
• Close the revenue accounts, these accounts will have a credit balance in the general ledger prior to the closing entry,credit the income summary accounts and debit revenue account.
• close the expense accounts, these accounts have a debit balance in the general lefger prior to the closing entry, debit the income summary account and credit the expenses account.
• Trarnsfer the income summary balance to a capital account, this entry effectively transfer the net income(or loss) of the business to the capital account.
• close the drawing account, if the business is the sole proprietorship, close the drawing account.

3.The major purpose of closing the books of accounts at the end of the accounting period is to allow us to prepare financial statments that give us a picture of our business's financial status.

• Income statement
• Balance sheet
• Cash flow statement

these statments are generally prepared.