Nature and purpose of closing entries, Accounting Basics

Closing Entries based accounting question

a)  Describe the nature of Closing Entries.  I.e. what is the purpose of closing entries?                    

b)  For each of the following accounts, indicate whether it is closed at the end of the year:                          

                 a)  Salaries Expense

                 b)  Accounts Receivable

                 c)  Sales Revenues

                 d)  Retained Earnings

                 e)  Cash              

                 f)  Rent Expense

                 g)  Interest income

                 h)  Accounts Payable

                 i)  Depreciation Expense

                 j)  Notes Payable

Answers:                                                                            

                At the end of accounting period, all the temporary accounts are closed. It means at the end of accounting period their balance becomes zero. The temporary accounts are transferred to their permanent accounts. This transfer is done by passing closing entries.                                                             

Temporary accounts include:                                                                     

                1. Revenue, Income and Gain Accounts                                                                

                2. Expense and Loss Accounts                                                                   

                3. Dividend, Drawings or Withdrawal accounts                                                                   

                4. Income Summary Account                   

 

 Whether following accounts are closed or not at the end of period:                                                                        

                 a)  Salaries Expense       Yes                                                        

                 b)  Accounts Receivable               No                                                         

                 c)  Sales Revenues          Yes                                                        

                 d)  Retained Earnings    No                                                         

                 e)  Cash               No                                                         

                 f)  Rent Expense              Yes                                                        

                 g)  Interest income         Yes                                                        

                 h)  Accounts Payable     No                                                         

                 i)  Depreciation Expense              Yes                                                        

                 j)  Notes Payable             No                                                          

 

 

Posted Date: 7/12/2012 2:59:22 AM | Location : United States







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