Question

End of year records for a business show:

$

Sale 50,000

Cost of sales 20,000

Selling expenses 4,000

Revenue received in advance 7,000

Depreciation expense 8,000

Discount received 2,500

Discount allowed 2,800

Rent revenue 6,500

Selling expenses 42

During the closing process the credit to the Profit or Loss Summary account would be:

Answer 1

Income received in advance will be treated as follows,

As we have received the amount in advance will trasfer the same to current liabilty and debit the amount from current year income, and in the next year the same will be credited to revenue in the next year.

So, for us the revenue for the current year will be

Sales = $ 50,000

Less; Revenue received in advance = ( $ 7,000)

So, revenue will be = $ 43,000

And the amount of $ 7, 000 will be shown in balance sheet as Current liability

Profit and Loss
Dr			Cr
Particulars	Amount (In $)	Particulars	Amount (In $)
Cost of sales	20,000	Sales	43,000
Selling expense	4,000	Discount received	2,500
Depreciation expense	8,000	Rent revenue	6,500
Discount allowed	2,800
Selling expense	42
Net income	17,158
	52,000		52,000