Question

a. Prepare the closing entries for Donovan Co. taken from the following ledger information after adjustment on December 31, 2011 the end of the fiscal year. Accounts Payable $ 47,200 Accounts Receivable 64,300 Accumulated Depreciation 22,750 Administrative Expenses 75,500 Capital Stock 141,750 Cash 39,700 Cost of Merchandise Sold 545,000 Dividends 42,000 Interest Expense 9,000 Merchandise Inventory 93,250 Rent Revenue 7,500 Office Equipment 49,750 Sales 820,500 Selling Expenses 101,500 Depreciation Expenses 6,500 b. What inventory system does Donovan Company use? Periodic or Perpetual?

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Answer 1

Following are the closing entries for the adjustments:

Closing entries represents the closing of the accounts of expenses and revenues of the company.

In the journal entry a., revenues are debited and income summary is credited to record the closing of revenues and adjustment of revenues to the income summary.

In the journal entry b., income summary is debited and expenses are credited to close the expenses of the company and adjusted the balance to the income summary.

Company D follows the periodic inventory system. The period inventory system represents the inventory system that brings the value of revenues and expenses at level zero.