Question

Sandox Retail has the following unadjusted trial balance as at 30 June 2020 in the table:

	Debit ($)	Credit ($)
Cash	8,524
Accounts Receivable	7,000
Supplies	15,000
Prepaid Insurance	300
Insurance Expense	600
Equipment	27,000
Accumulated Depreciation	12,000
Other Assets	5,100
Wages Payable	1,500
Accounts Payable	7,500
Income Tax Payable	3,150
Share Capital (3000 shares outstanding all year)	16,000
Retained Profit	10,300
Sales Revenue	95,000
COGS	32,900
Wages Expense	18,000
Supplies Expense	25,680
Income Tax Expense	5,346
Total	145,450	145,450

Required:
a) Prepare an Income Statement for Sandox Retail for the financial year 2019-2020.
b) Prepare a Balance Sheet as of 30 June 2020.
c) Prepare the closing journals for Sandox Retail.

Answer 1

a)

Sandox Retail
Income Statement
For the Year Ended 30 June 2020
Sales Revenue		$95,000
Cost of Goods Sold		$32,900
Gross Profit		$62,100
Expenses:
Wages Expense	$18,000
Supplies Expense	$25,680
Insurance Expense	$600
Income Tax Expense	$5,346
Total Expenses		$49,626
Net Income		$12,474

Workings:

Sandox Retail
Statement of Retained Profit
For the Year Ended 30 June 2020
Retained Profit, July 1, 2019	$10,300
Add: Net Income		$12,474
Subtotal			$22,774
Less: Dividends		$0
Retained Profit, 30 June 2020	$22,774

b)

Sandox Retail
Balance Sheet
30 June 2020
Assets				Liabilities
Current Assets:				Current Liabilities:
Cash			$8,524	Accounts Payable		$7,500
Accounts Receivable		$7,000	Wages Payable		$1,500
Supplies			$15,000	Income Taxes Payable		$3,150
Prepaid Insurance		$300	Total liabilities		$12,150
Total Current Assets		$30,824
Non-Current Assets:			Stockholders' Equity:
Equipment		$27,000		Share Capital		$16,000
Less: Accum. Depreciation	-$12,000		Retained Profit		$22,774
Other Assets:			$15,000	Total Stockholders' Equity	$38,774
Other Assets			$5,100
Total Assets			$50,924	Total Liabilities & Stockholders' equity	$50,924

c)

Closing entries are those entries recorded at the last day of reporting period to close revenue and expense accounts to Retained profit using a temperary account called income summary.

When closing entries are recorded for revenues, Income Summary account shall be credited and Revenue accounts shall be debited; Similarly, when closing entries are recorded for expenses, Income Summary account shall be debited and Expense accounts shall be credited.

Balance in Income Summary account will represent either Net profit or Net loss for the reporting period which shall be closed to Retained Profit. Similarly, balance in dividend account, if any shall be closed to retained earnings account by crediting dividends account and debiting retained profit account.

Entry No.	General Journal	Debit	Credit
Close-(1)	Sales Revenue	$95,000
	Income Summary		$95,000
	(To close revenue account)
Close-(2)	Income summary	$82,526
	Cost of Goods Sold		$32,900
	Wages Expense		$18,000
	Supplies Expense		$25,680
	Insurance Expense		$600
	Income Tax Expense		$5,346
	(To close expense accounts)
Close-(3)	Income summary	$12,474
	Retained earnings		$12,474
	(To close net profit to retained profit)