Question

Johnson Company had the following account balances at the end of the most recent fiscal year: Cash: $4,300, Accounts Receivable: $1,200, Supplies: $200, Accounts Payable: $700, S. Johnson, Capital: $2,900, S. Johnson, Drawing: $300, Fees Income: $4,900, Rent Expense: $1,300, Advertising Expense: $1,000, Supplies Expense: $200. Assuming that these were the only accounts used by Johnson Company during the year, for which of the following steps in the closing process would a compound entry be necessary?

• Step 1: Transfer Revenue Account Balances

• Step 2: Transfer Expense Account Balances

• Step 3: Transfer Net Income or Net Loss to Owner’s Equity

• Step 4: Transfer the Drawing Account Balance to Capital

Answer 1

Event/Date	Account title and explanation	Debit	Credit
Step 1	Fees Income	$            4,900
	Income Summary		$           4,900
	(To close revenue account )
Step 2	Income Summary	$            2,500
	Rent Expense		$           1,300
	Advertising expense		$           1,000
	Supplies expense		$              200
	(To close Expense account )
Step 3	Income Summary ( 4900-2500)	$            2,400
	Johnson`s Capital		$           2,400
	(To transfer net income to capital )
Step 4	Johnson`s Capital	$               300
	Johnson`s Drawings		$              300
	(To close drawings to capital)