Question

The ledger of Quintana Company contains the following balances: owner's capital $40,000, owner's drawings $3,000, service revenue $65,000, salaries and wages expense $39,000, and maintenance and repairs expense $9,000. Prepare the closing entries at December 31.

Answer 1

Quintana Company's closing entries involve closing revenue to the Income Summary, expenses to the Income Summary, net income to Owner's Capital, and drawings to Owner's Capital. This results in a net adjustment to the Owner's Capital account reflecting the net income and drawings for the period.

Step-by-step explanation:

The closure of accounting books at the end of a period involves creating closing entries to transfer the balances of temporary accounts to a permanent account. For Quintana Company, we will create closing entries for the owner's drawings, service revenue, and the expenses accounts. To demonstrate the process, here is the step by step explanation:

1. Close Service Revenue to Income Summary:
   Debit Service Revenue $65,000
   
   Credit Income Summary $65,000
2. Close Expenses to Income Summary:
   Debit Income Summary $48,000
   
   Credit Salaries and Wages Expense $39,000
   
   Credit Maintenance and Repairs Expense $9,000
3. Close Income Summary (which now reflects the net income) to Owner's Capital:
   Debit Income Summary $17,000
   
   Credit Owner's Capital $17,000
4. Close Owner's Drawings to Owner's Capital:
   Debit Owner's Capital $3,000
   
   Credit Owner's Drawings $3,000

Quintana Company's net income is recorded by closing revenue and expense accounts to the Income Summary, and then the Income Summary to Owner's Capital. Owner's drawings are also closed to the Owner's Capital.