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Closing Entries for Revenue and Expenses

The document outlines the closing entries for a company's transactions in January 2024, detailing service revenues, expenses, and dividends. It includes examples of journal entries for revenue and expense accounts, culminating in the calculation of net income and adjustments to retained earnings. The post-closing trial balance reflects only permanent accounts after closing temporary accounts to zero balances.

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3 views5 pages

Closing Entries for Revenue and Expenses

The document outlines the closing entries for a company's transactions in January 2024, detailing service revenues, expenses, and dividends. It includes examples of journal entries for revenue and expense accounts, culminating in the calculation of net income and adjustments to retained earnings. The post-closing trial balance reflects only permanent accounts after closing temporary accounts to zero balances.

Uploaded by

linhcute80
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Chapter 4

Closing entry
Example 1: In Jan, 2024, the company has the following transaction.
Assume RE account has 3,000 credit opening balance.
1. Provide service on account for $5,000
Dr AR 5,000
Cr Service revenue 5,000
2. End of Jan, accrued salary expense is $1,000
Dr SW expense 1,000
Cr SW payable 1,000
3. End of Jan, receive the electric bill for $1,200
Dr Utilities expense 1,200
Cr Account payable 1,200
4. Declare and paid cash dividend for $500.
Dr Dividend 500
Cr Cash 500

SW expense Income Service revenue


summary
1,000 1,000 2,200 5,000 5,000 5,000
(2) (C2) (C2) (C1) (C1) (1)
2,800
(C3)

Utilities
expense
1,200 1,200
(3) (C2)

Dividend Retained earnings


500 (4) 500 500 OB: 3,000
(C4) (C4) 2,800 (C3)
CB: 5,300

Closing entry
C1: to close Revenue to Income summary
Dr Service revenue 5,000
Cr Income summary 5,000
 Revenue account has 0 balance

C2: to close Expense to Income summary


Dr Income summary 2,200
Cr SW expense 1,000
Cr Utilities expense 1,200
 All Expense accounts have 0 balance

Net income of Jan = Revenue – Expense = 5,000 – 2,200 = 2,800


C3: to close Net income to Retained earnings
Dr Income summary 2,800
Cr RE 2,800
 Income summary account has 0 balance

C4: to close Dividend to Retained earnings


Dr RE 500
Cr Dividend 500
 Dividend account has 0 balance
Post closing trial balance
Because all revenue ,expense, dividend account have 0 balance, in the
post closing trial balance, only permanent accounts (asset, liability,
equity)

Example 1: In Jan, 2024, the company has the following transaction.


Assume RE account has 3,000 debit opening balance.
1. Provide service on account for $3,000
Dr AR 3,000
Cr Service revenue 3,000
2. End of Jan, accrued salary expense is $2,000
Dr SW expense 2,000
Cr SW payable 2,000
3. End of Jan, receive the electric bill for $1,200
Dr Utilities expense 1,200
Cr Account payable 1,200

SW expense Income summary Service revenue


2,000 2,000 3,200 3,000 3,000 3,000
(2) (C2) (C2) (C1) (C1) (1)
200
(C3)

Utilities RE
expense
1,200 1,200 OB: 3,000
(2) (C2) 200 (C3)
CB: 3,200
C1 for revenue
Dr Service revenue 3,000
Cr Income summary 3,000

C2 for expense
Dr Income summary 3,200
Cr SW expense 2,000
Cr Utilities expense 1,200

C3 for net loss 200


Dr RE 200
Cr Income summary 200

Closing entry
Dr Service revenue 98,000
Cr Income summary 98,000
Dr Income summary 80,000
Cr Rent expense 22,000
Cr SW expense 51,000
Cr Supplies expense 7,000
Dr Income summary 18,000
Cr RE 18,000
Dr RE 15,000
Cr Dividend 15,000

RE
15,000 OB: 0
18,000
CB: 3,000

Post closing trial balance Dec 31


Account Dr Cr
Account receivable 18,000
Account payable 27,000
Share capital 42,000
Retained earnings 3,000

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