Question

The December 31, 2021, adjusted trial balance for Fightin' Blue Hens Corporation is presented below. Accounts Debit Credit Cash $ 11,500 Accounts Receivable 145,000 Prepaid Rent 5,500 Supplies 27,500 Equipment 350,000 Accumulated Depreciation $ 130,000 Accounts Payable 11,500 Salaries Payable 10,500 Interest Payable 4,500 Notes Payable (due in two years) 35,000 Common Stock 250,000 Retained Earnings 55,000 Service Revenue 450,000 Salaries Expense 350,000 Rent Expense 17,500 Depreciation Expense 35,000 Interest Expense 4,500 Totals $ 946,500 $ 946,500 Required: 1. Record the necessary closing entries at December 31, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

Usually, we use the "Income Summary" account to close the Income Statement accounts such as revenues and expenses.

First, close the revenue account by debiting it:

(DR) Service Revenue $450,000

(CR)       Income Summary    $450,000

Then, close the expenses accounts by crediting them:

(DR) Income Summary $407,000

(CR)        Salaries Expense       $350,000

(CR)        Rent Expense              $17,500

(CR)       Depreciation Expense   $35,000

(CR)      Interest Expense             $4,500

Finally, close the Income Summary account to Retained Earnings.

The balance of the Income Summary is a credit balance of $43,000

(credit of $450,000 less debit of $407,000)

So, to close the account we have to debit it.

(DR)  Income Summary      $43,000

(CR)               Retained Earnings          $43,000