Question

A company has the following adjusted trial​ balance:________. Account Debit Credit Cash ​$1,100 Accounts Receivable ​ 1,000 Inventory ​1,900 Supplies ​1,800 Prepaid Rent 400 Land ​ 5,800 Building ​40,500 Accumulated Depreciation—Building ​ $8,900 Accounts Payable ​ 7,800 Unearned Revenue ​ 4,000 Notes​ Payable, due 2020 ​2,400 Common Stock ​6,600 Retained Earnings ​3,200 Dividends 900 Service Revenue ​ 32,200 Rent Expense ​1,500 Supplies Expense ​ 1,200 Salaries Expense ​ 6,100 Depreciation Expense—Building ​ 1,000 Utilities Expense ​ 1,900 Totals ​ $65,100 ​$65,100 Which closing entry is​ needed?

Answer 1

Closing entries are required to transfer revenue and expense account balances to the Income Summary, and then close the Income Summary and Dividends to Retained Earnings. The Service Revenue would be closed with a debit of $32,200 and a credit to the Income Summary, followed by closing entries for expenses and dividends.

Step-by-step explanation:

At the end of an accounting period, a company must make closing entries to prepare the temporary accounts for the next period. The adjusted trial balance provided shows various expenses and revenues, along with dividends which are also closed to Retained Earnings. To close the Service Revenue account, which has a credit balance, a debit entry equal to the credit balance ($32,200) will be made to the Service Revenue account, and a corresponding credit entry will be made to the Income Summary account. Closing entries for expenses also involve debiting the Income Summary and crediting each expense account (Rent Expense, Supplies Expense, Salaries Expense, Depreciation Expense—Building, Utilities Expense) for the amounts shown.

After transferring all revenue and expense account balances to the Income Summary account, a closing entry for the Income Summary account's balance (which now represents the net income or loss) is made by debiting Income Summary and crediting Retained Earnings. Lastly, Dividends will be closed to Retained Earnings by debiting Retained Earnings and crediting Dividends for $900.

Answer 2

Answer: Debit Retained Earnings $900 and credit Dividends $900

Step-by-step explanation:

When accounting for dividends at the end of the year they should be removed from the Retained Earnings because this is the account that they will be funded from.

As Retained Earnings is an Equity account, when it is reduced it will be debited so in this case the $900 for dividends will be debited. The Dividends being a temporary account are debited when the Dividends are declared by the company during the year.

When the company wants to close off the account they will then transfer it to the Retained Earnings account by crediting it.