Question

On December 31, 2019, the ledger of Lopez Company contained the following account balances: Cash $ 31,000 Maria Lopez, Drawing $ 11,500 Accounts Receivable 1,900 Fees Income 43,750 Supplies 1,100 Depreciation Expense 1,750 Equipment 24,000 Salaries Expense 15,000 Accumulated Depreciation 1,500 Supplies Expense 2,000 Accounts Payable 2,000 Telephone Expense 1,600 Maria Lopez, Capital 46,250 Utilities Expense 3,650 Prepare the closing entries for the above transactions.

Answer 1

• Closing entries asked

Date	Accounts title	Debit	Credit
31-Dec	Fees Income	$43,750
	Income Summary		$43,750
	(to close revenues)
31-Dec	Income Summary	$20,350
	Depreciation expenses		$1,750
	Salaries expense		$15,000
	Supplies expense		$2,000
	Telephone expense		$1,600
	(to close expenses)
31-Dec	Income Summary	$23,400
	Maria Lopez, Capital		$23,400
	(to close Income Summary - Net Income)
31-Dec	Maria Lopez, Capital	$11,500
	Maria Lopez, Drawings		$11,500
	(to close owner's withdrawals)

General Concepts regarding Closing entries:

#1:Temporary accounts, like Revenue accounts, have normal CREDIT balances, and hence they are closed by DEBITING the account.

#2:Temporary accounts, like Expense accounts or Contra revenue accounts, have normal DEBIT balances, and hence they are closed by CREDITING the account.

#3: In case of Net Income, Income Summary account has a CREDIT balance, and in order to close the Income Summary account, we DEBIT the account, and Credit Retained earnings/Owner's Capital

#4: In case of Net Loss, Income Summary account has a DEBIT balance, and in order to close the Income Summary account, we CREDIT the account, and Debit Retained earnings/Owner's Capital

#5: Dividend accounts have normal DEBIT balance, and are closed by CREDITING them, and debiting Retained earnings account.

#6: Drawings or Withdrawal account have a normal DEBIT balance, and hence closed by CREDITING the account, and debiting Owner's Capital account.