Question

Crane has year-end account balances of Sales Revenue $795,635, Interest Revenue $14,740, Cost of Goods Sold $567,566, Administrative Expenses $205,540, Income Tax Expense $35,298, and Dividends $20,554. Prepare the year-end closing entries.

Answer 1

Year-end closing entries for Crane would involve closing all revenue and expense accounts to the Income Summary account, then closing the Income Summary to the Retained Earnings account while also closing Dividends to Retained Earnings.

Step-by-step explanation:

Year-End Closing Entries

To prepare year-end closing entries, we must zero out all revenue and expense accounts and transfer the net income or loss to Retained Earnings. Here is how we would close Crane's accounts based on the provided balances:

1. Close Sales and Interest Revenue to Income Summary.
   Debit Sales Revenue $795,635
   Debit Interest Revenue $14,740
   Credit Income Summary $810,375
   
2. Close expenses to Income Summary.
   Debit Income Summary $808,404
   Credit Cost of Goods Sold $567,566
   Credit Administrative Expenses $205,540
   Credit Income Tax Expense $35,298
   
3. Close Income Summary to Retained Earnings.
   Note: The difference between the credits and debits to Income Summary represents the net income that is being transferred to Retained Earnings.
4. Close Dividends to Retained Earnings.
   

These entries will reset the temporary accounts (revenues, expenses, and dividends) for the new fiscal year and update the Retained Earnings account with the net income and dividends declared for the year.

Answer 2

Closing entries

Journal 1

Debit : Sales Revenue $795,635

Credit : Income Statement $795,635

Journal 2

Debit : Interest Revenue $14,740

Credit : Income Statement $14,740

Journal 3

Debit : Income statement $567,566

Credit : Cost of Goods Sold $567,566

Journal 4

Debit : Income Statement $205,540

Credit : Administrative Expenses $205,540

Journal 5

Debit : Income statement $35,298

Credit : Income Tax Expense $35,298

Journal 6

Debit : Retained Earnings Statement $20,554

Credit : Dividends $20,554

Explanation :

To prepare closing entries, first identify the final statement to which the Account belong to. For example, the Sales Revenue belong to the Income Statement. Then close off the Account using the final statement identified as above.