Question

Kimberly Ashley, the bookkeeper for Interiors Designs, has just finished posting the closing entries for the year to the ledger. She is concerned about the following balances:

Capital account balance in the general ledger:	$	194,200
Ending capital balance on the statement of owner’s equity:		111,200

Ashley knows that these amounts should agree and asks for your assistance in reviewing her work.

Your review of the general ledger of Interiors Designs reveals a beginning capital balance of $100,000. You also review the general journal for the accounting period and find the closing entries shown below.

GENERAL JOURNAL				Page 15
Date		Description	Debit	Credit
20X1		Closing Entries
Dec.	31	Fees income	196,000
		Accumulated depreciation	17,000
		Account payable	66,000
		Income summary		279,000
	31	Income summary	184,800
		Salaries expense		156,000
		Supplies expense		10,000
		Depreciation expense		4,800
		Wade Wilson, Drawing		14,000

Reconcile the balance of capital account in the ledger after closing entries have been posted and the ending capital balance of owner's equity.

	Expenses: 0 $0 $0 $0 Capital account balance in general ledger Corrected ending Capital balance $0

Answer 1

The reconciliation will be prepared in the following manner

Capital account balance in general ledger.........$194,200

Less: Accumulated Depreciation wrongly transferred into Income Summary.........$17,000

Less: Accounts Payable wrongly transferred into Income Summary.........$66,000

Corrected ending Capital balance........$111,200

Another way of preparing the reconciliation can be

Beginning balance of capital account.............100,000

Add: Revenues................196,000

Less: Expenses..............170,800 (156000+10000+4800)

Less: Drawings..............14,000

Ending balance of capital account.............111,200

Workings

The main reason for the diffrence is that during the closing process two permanent accounts have been closed into Inomce Summary. these accounts are: accumulated depreciation and accounts payable.

During closing only temporary accounts are closed which include revenue, expenses and withdrawals.

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