Supplement to CHAPTER 3
CLOSING ENTRIES AND THE WORK SHEET
Answers to Review Questions
1.
No, the work sheet cannot be used as a substitute for the financial statements.
It is a tool used in preparing financial statements. Work sheets and financial
2. The Adjusted Trial Balance columns should be totaled before the adjusted
amounts are carried to the Income Statement and Balance Sheet columns to
3. The amounts should be extended line by line to the proper debit or credit col-
umn of the Income Statement or Balance Sheet columns, beginning with the
first line. This procedure avoids overlooking an account.
5. The totals do not usually agree. Included in the Balance Sheet credit column
are accumulated depreciation accounts, for example, which appear on the bal-
the work sheet because the necessary adjustments are determined on the work
sheet.
7. The posting of adjusting entries to the ledger often follows the preparation of
4. Not usually. The difference is the amount of net income or loss for the period.
6. The adjusting entries are posted before the closing entries; otherwise, the
closing entries would not set temporary, or nominal, accounts to zero bal-
31 25,620
25,620
31 16,830
8,110
1,200
Wages Expense
Rent Expense
Income Summary
Repair Revenue
To close the credit balance account
Chapter 3S, E 1.
Income Summary
Dec.
2011
Debit Credit Debit Credit Debit Credit Debit Credit
444
777
666
23 (b) 2 25 25
222
10
(
d
)
11111
43 43
(a) 1 1 1
Dividends
Trial Balance
Debit
Income BalanceAdjusted
Chapter 3S, E 2.
Work sheet completed
1. Trial balance amounts entered on the work sheet
2.
SheetStatement
Service Revenue
Account Name
Cash
Accounts Receivable
Utilities Expense
Wages Expense
Depreciation Expense—
Insurance Expense
Trial Balance Adjustments
Credit
For the Month Ended October 31, 2011
Work Sheet
(d) June 30 54,000 Bal. 271,150
(c) June 30 83,150
Bal. 300,300
Bal. —
(a) June 30 678,100 Bal. 678,100
Bal. —
Bal. 51,600 (b) June 30 51,600
Bal. —
39,750 (b) June 30 39,750
—
Chapter 3S, P 1.
Maintenance Expense
Revenue from Court Fees
Retained Earnings
2.
T accounts opened and balances entered1.
Closing entries entered in T accounts
Revenue from Locker Fees
Advertising Expense
Bal.
Bal.
30,000 (b) June 30 30,000
—
6,900 (b) June 30 6,900
—
Miscellaneous Expense
Bal.
Bal.
Chapter 3S, P 1. (Continued)
Depreciation Expense—Building
Depreciation Expense—Equipment
Bal.
Bal.
$678,100
9,600
$687,700
$351,000
64,800
51,600
$ 83,150
$271,150
83,150
Retained earnings, June 30, 2010
Net income
Chapter 3S, P 1. (Continued)
For the Year Ended June 30, 2011
Total expenses
Settles Tennis Club, Inc.
Statement of Retained Earnings
Income Statement
For the Year Ended June 30, 2011
Settles Tennis Club, Inc.
3. Income statement, statement of retained earnings, and balance sheet prepared
Revenue from court fees
Maintenance expense
Expenses
Net income
Revenue from locker fees
Total revenues
Revenues
Utilities expense
Wages expense
$ 26,200
260,000 385,200
$156,000
50,400 105,600
$627,800
$ 73,000
$200,000
Chapter 3S, P 1. (Continued)
Common stock
Settles Tennis Club, Inc.
Cash
Balance Sheet
Total assets
Accounts payable
June 30, 2011
Assets
Equipment
Less accumulated depreciation
Liabilities
Stockholders’ Equity
Less accumulated depreciation
4. Reason for closing entries explained
Closing entries are journal entries made at the end of the accounting period to
accomplish two purposes: (1) to set the stage for the next accounting period by
Page 1
Post.
Ref. Debit Credit
1 111 5,000
311 5,000
2 144 4,200
111 600
212 3,600
5 119 468
8 512 60
111 60
Repair Equipment
Date
Common Stock
Advertising Expense
1. Entries for May prepared
6.
May
2011
3.
Cash
Cash
seventh down
Chapter 3S, P 2.
Closing entries for May prepared
To issue stock
Cash
Adjusting entries for May prepared
Accounts Payable
To purchase repair equipment, one-
Repair Supplies
General Journal
Description
To purchase newspaper
advertisement
Page 2
Post.
Ref. Debit Credit
31 111 975
411 975
31 513 40
117 40
$480 ÷ 12 = $40
May
To record one month’s expired
2011
Adjusting entries:
Insurance Expense
Prepaid Insurance
insurance
Chapter 3S, P 2. (Continued)
General Journal
Date Description
CashMay
Repair Revenue
Page 3
Post.
Ref. Debit Credit
31 411 1,375
314 1,375
31 314 944
511 425
512 60
Repair Revenue
Closing entries:
To close the credit balance account
2011
Chapter 3S, P 2. (Continued)
Advertising Expense
General Journal
Description
Income Summary
May
Store Rent Expense
Income Summary
Date
$ 4,285
440
169
4,200
$70
3,843
Repair Supplies
Repair Equipment
Chapter 3S, P 2. (Continued)
4.
Prepaid Insurance
A
djusted Trial Balanc
e
Cash
Accumulated Depreciation—Repair Equipment
Accounts Payable
May adjusted trial balance prepared
Javier’s Repair Service, Inc.
May 31, 2011
944
$ 431
$—
431
Total expenses
Net income
Retained earnings, May 1, 2011
Net income
Income Statemen
t
For the Month Ended May 31, 2011
Javier’s Repair Service, Inc.
Chapter 3S, P 2. (Continued)
5. May income statement, statement of retained earnings, and balance shee
t
prepared
Javier’s Repair Service, Inc.
Statement of Retained Earnings
For the Month Ended May 31, 2011
$4,285
$3,843
50
$3,893
$5,000
$4,285
440
Post-Closing Trial Balance
May 31, 2011
Total liabilities
Cash
Common stock
Javier’s Repair Service, Inc.
Cash
Prepaid Insurance
7. May post-closing trial balance prepared
Income taxes payable
Javier’s Repair Service, Inc.
Balance Sheet
May 31, 2011
Prepaid insurance
Chapter 3S, P 2. (Continued)
Assets
Accounts payable
Liabilities
Stockholders’ Equity
Page 4
Post.
Ref. Debit Credit
1 511 425
111 425
15 111 914
411 914
20 512 60
111 60
Cash
Date
To pay one month’s rent
Cash
Chapter 3S, P 2. (Continued)
Closing entries for June prepared
2011
8. Journal entries for June prepared
12.
9. Adjusting entries for June prepared
June Store Rent Expense
General Journal
Description
first half of the month
Repair Revenue
Cash
To purchase additional advertisement
Advertising Expense
To record receipt of revenue for the
Page 5
Post.
Ref. Debit Credit
30 513 40
30 514 619
119 619
$1,032 – $413 = $619
30 515 70
30 411 1,731
314 1,731
30 314 1,264
511 425
512 60
Store Rent Expense
Income Summary
Advertising Expense
Income Summary
Adjusting entries:
To close the credit balance account
Repair Revenue
Depreciation Expense—Repair Equipment
Chapter 3S, P 2. (Continued)
General Journal
Date
To record supplies used during June
Repair Supplies
June Insurance Expense
Description
Repair Supplies Expense
2011