At the end of the fiscal year, Teresa Schafer, Capital has a credit balance o After the accounts have been adjusted on April 30, the end of the fiscal year, the following balances were taken from the ledger of Nuclear Landscaping Co.: Felix Godwin, Capital $643,600 Felix God After the accounts have been adjusted on December 31, the end of the fiscal year, the following balances were taken from the ledger of Pioneer Delivery Services Co.: Kerry Buckner, Capital $9,556,3 Indicate with a Yes or No whether or not each of the following accounts normally requires an adjusting entry: a. Temporary accounts carry a zero balance at the beginning of each accounting period. Is wage expense classified as an asset, a liability, or owner's equity? The debit column of the trial balance would be $1,200 more than the credit column. What do closing entries accomplish? Post transactions to the ledger 3. Closing Entries. (d) Depreciation expense account. Explain theoretically how the distinction between temporary and permanent accounts relates to the closing process. All temporary accounts must be reset to zero at the end of the accounting period. Close the dividends account by debiting retained earnings and crediting dividends. August through December is five months. C. Accounts receivable. a. a. a. Closing entries with net income after all revenue and expense accounts have been closed at the end of the fiscal year. Totals 21,350 | 21,350 List of Excel Shortcuts Retained Earnings 500,000 The adjusting entry debiting supplies expense and crediting supplies will increase expenses and decrease assets by $1,475. Supplies expense. During a company's first year of operations, the asset account, Office Supplies, was debited for $2,300 for the purchases of supplies. b) The Income Statement columns. Every entry (not only closing entries) must include at least one debit to an account and at least one credit to an account. Mikaela Mundt invested $2,000 of her own money in her business. Which of the following is not a closing entry? Fees Earned c. Unearned Rent d. Depreciation Expense. True or false? Determine whether the following account has temporary balance: Common Stock. Multiple Choice Retained Earnings 17,000 b. Salaries Expense b. Assume a company has a net income that exceeds the owner's drawing for the current year. Paid cash to a customer who requested a refund Consider the following account from the worksheet of Eiler Copy Service: Cheryl Eiler, Drawing. Service revenue = $25,000 b. Companies use closing entries to reset the balances of temporary accounts accounts that show balances over a single accounting period to zero. Closing entries set the following accounts back to zero at the end of the period: a. Assets C. Liabilities D. Owner's Equity. Port Austin Boat Repair Inc. has entered and posted its adjusting entries for 2009. Liabilities increase and stockholders' equity decreases. A debit to accounts receivable increases assets and a credit to service revenue increases stockholders' equity (retained earnings). Categorize the following account as temporary or permanent: Land. The company would record an increase in cash (a debit) of $1,300, an increase in accounts receivable (a debit) of $1,200, and an increase in revenue (a credit) of $2,500. The company paid $52,800 in dividends during the year. Describe the four entries that close the temporary accounts. Income Summary is a permanent account only used for the closing process. Provide an example of a permanently restricted resource. P Imex Services Co. offers its services to individuals desiring to improve their personal images. Cash 1,300 | The credit to the dividends account leaves a zero balance in that account. Rent Expense. Thanks for reading CFIs closing entry guide. B) False. Salaries Expense | 500. Retained earnings will increase by $2,550. Which of the following could be an explanation for this transaction? You will see that they have a credit balance. Sales Discount b. What particular item of financial or operating data appears on both the income statement and the statement of owner s equity? For example, equal trial balance totals would not disclose errors like the following: failure to record transactions; misclassifications (such as debiting the wrong account); or incorrectly recording the amount of a transaction. All year-end adjustments had been entered, but the books had not yet been closed. If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a: A. debit to the owner's drawings account. A credit to Dividends Common Stock |6,600 Expenses are closed to the Expense Summary account. This is a partial adjusted trial balance of Barone Company. Identify whether the account: Rent expenses, is a Temporary Account (Nominal) or a Permanent Account (Real). Multiple Choice c) all accounts are closed. The entry to close Cost of Goods Sold includes a debit to Income Summary. [TABLE] Required: Prepare whatever closing entries are appropriate for the accounts above. What are the four steps necessary to complete the closing process? Question: 1. Rent Expense c. Sales d. Merchandise Inventory. Multiple Choice Closing Entry: A closing entry is a journal entry made at the end of the accounting period in which data is moved into the permanent accounts on the balance sheet from temporary accounts on the . Which of the following is not an asset? B. To understand this better, we can look at an account such as inventory. Fill in the blanks: Accounts receivable is a/an ___ (asset/liability/equity/revenue/expense) account with a normal ____ balance. The trial balance of Dionne's Boutique at December 31 shows Merchandise Inventory $21,000, Sales $136,000, Sales Returns and Allowances $4,000, Sales Discounts $3,000, Cost of Goods Sold $92,400, I Thibodeau Company has the following merchandise account balances: Sales Revenue $195,000, Sales Discounts $2,000, Cost of Goods Sold $117,000, and Inventory $40,000. Google uses a time ticket for some employees. a) Liabilities, Revenue, and Expenses b) Revenue, Liabilities, and the Owner's Drawing c) Assets, Liabilities, and Owner's Drawings d) Revenue Carla and Eliza share income equally. a. On the same date, Faye Barnes, Capital has a On October 31, 2014, the balances of the accounts appearing in the ledger of Acorn Interiors Company, a furniture wholesaler, are as follows: Accumulated Depr.-Building $142,000 Notes Payable $125, After all revenue and expense accounts have been closed at the end of the fiscal year, Income Summary has a debit of $490,750 and a credit of $613,400. The two asset accounts listed on the trial balance are Cash and Accounts Receivable. Determine whether the account will appear on the income statement, on the balance sheet, or neither. Prepaid Rent, $300; Rent Expense, $900 -A. Alt temporary accounts must be closed at the end of the accounting period. Test your understanding with practice problems and step-by-step solutions. a. a. Closing entries are recorded after financial statements have been prepared. How would this event be reflected in T-accounts? b. a credit to Merchandise Inventory for the cost of ending inventory. The company closes its temporary accounts once each year on December 31. Explanation The balance sheet will report retained earnings of $23,500 after the closing entries have been posted to the ledger accounts only if this is the company's first year of operations. Debits increase asset accounts; credits decrease asset accounts. Explain how the following general journal entry affects the accounting equation. Accounts Payable b. c. All permanent accounts. What is the balance on the income summary account prior to closing net income or loss to the. These permanent accounts show a companys long-standing financials. Accounts Payable, a liability account, is decreased with a debit. 2. update a periodic inventory account for credit sales. The company paid $6,400 cash in dividends to Canopy. After preparing and posting the closing entries to close revenues (and gains) and expenses (and losses) into the income summary, the income summary account has a debit balance of $33,000. Stevenson Company purchased supplies for $5,150 cash. $1,500 5 = $7,500. How would this transaction be recorded in the company's T-accounts? The Cash account must be adjusted for the effects of the daily transactions with customers and creditors. Its expense accounts total $130,000, and its revenue accounts total $190,000. b. This process is also called as the . Wages Expense, Accumulated Depreciation, Fees Income. transaction has been recorded in the T-accounts of Gibbs Company as follows: Cash 500,000 Expenses and assets will both increase by $1,475. True. Explanation At every financial year-end, only revenues are closed to the Income Summary account. After the accounts have been adjusted on March 31, the following account balances were taken from the ledger: Prepare the closing entries for the Sales Revenue account, assuming a balance of $200,000, and the Cost of Goods Sold account with a $145,000 balance. B) The worksheet is a document used to summarize data to prepare financial statements . Salary Expense b. Rider Company is in the process of preparing its closing entries. The company's accounts must be adjusted to ensure that debits are equal to credits prior to preparing the trial balance. Cash dividends. What is the Retained Earnings account balance that will be included on the post-closing trial balance? Early in the year Bill Sharnes and several friends organized a corporation called Sharnes Communications, Inc. Hot Tamale Company had $120,000 of revenues and $125,000 of expenses. This is done using the income summary account. Prepare the general journal entry to record this transaction. The following is a partial adjusted trial balance as of December 31, 2013. Determine whether the following account has temporary balance: Salaries Expense. The firm began business on January 1 all accounts have a normal balances. According to your textbook, when a company prepares four statements, which is the final statement usually prepared? To close net income to the owner's capital, the income summary is debited and the owner's capital is credited. a. Debits increase asset accounts; credits decrease asset accounts. a. D. Salaries expense. Date Accounts and Explanations Debit Credit A. Why are closing entries required at the end of an accounting period? $12,500 Land, an asset, is increased with a debit, and cash, another asset, is decreased with a credit. Note how they were reflected in his theory. United Rug Company is a small rug retailer owned and operated by Pat Kirwan. b. Which of the accounts below would be closed by posting a debit to the account? Which of the following accounts would not appear in a closing entry? After making entries to close its revenue and expense accounts to Income Summary, Hancock Company has the following balances. Selected accounts of Sparkle Electrical, Inc., at April 30, 2018, follow. Salaries Expense | 500 Question: Which of the following statements is true of the accounting cycle? Which of the following is a permanent account? Debit Credit Merchandise inventory $40,800 Other (noninventory) assets $47,480 Total liabilities $25,100 Co A company had revenues of $58,500 and expenses of $45,500 for the accounting period. Using the weighted-average method, what are the equivalent units of production for the month of July? Which of the following accounts will not be closed to Income Summary at the end of the fiscal year? Which of the following statements regarding closing entries is true? True b. If so, does the closing entry require a debit or a credit to the account? Prepare the general journal entry to record this transaction. The capital account c. the cash account d. the income summary account. Closing entries, also called closing journal entries, are entries made at the end of an accounting period to zero out all temporary accounts and transfer their balances to permanent accounts. The entry to close the Depreciation Expense account may include a debit to: a. the Income Summary account and a credit to the Depreciation Expense account. Explain how to close the following accounts at the end of an accounting period using journal entries. Accruing salary expenses will increase Salaries Expense and increase Salaries Payable, a liability. Multiple Choice Identify whether the account: Supplies expense, is a Temporary Account (Nominal) or a Permanent Account (Real). Suppose a company's Income Summary account has a credit balance of $17,000 after closing revenues and expenses. B) $78,500. Accumulated Depreciation c. Drawing d. Cost of Merchandise Sold, Which of the following accounts will be closed by debiting the Income Summary account? Which of the following accounts would be closed at the end of the accounting period with a debit? b. Operating Expenses |15,500 Which of the following choices reflects the effect of closing entries on the company's financial statements? c. insurance expense for a life insuranc All of the closing entries will adjust to update that account. On the left side of the Supplies T-account Which of the following accounts is decreased with a credit? A credit to Dividends Which of the following accounts will be closed by debiting the income summary account? Explanation Explanation A Closing entries are recorded at the end of each reporting period which could be monthly, quarterly or annually. Only revenues are closed to the Income Summary account. Analyze and record transactions 2. b) Revenues for the period. Unearned Revenue 4,000 | What is the journal entry required to close out a credit balance in Service Revenues of $2,500 for the period? Interest Expense 3. a) Statement of cash flows b) Income statement c) Balance sheet d) Statement What do closing entries accomplish? Service Revenue. The Insurance Expense account must be increased with a debit for $400 ($200 2) and the Prepaid Insurance account must be decreased with a credit for the same amount. When the income statement is published at the end of the year, the balances of these accounts are transferred to the income summary, which is also a temporary account. Purchase of supplies on account was recorded with a credit to Supplies and a debit to Accounts Payable. b) expense summary. All five of these entries will directly impact both your revenue and expense accounts. If so, does the closing entry require a debit or a credit to the account? (More than one answer may be correct.) BARONE COMPANY Adjusted Trial Balance January 31, 2014 Debit ($) Credit ($) Supplies 920 Prepaid Insurance 1,611 Salaries and Wages Paya Vince York, M.D. The adjusting entry that Able should make to accrue these unpaid salaries on December 31, Year 1 is: Retained earnings will decrease by $2,550. Balance sheet accounts are permanent accounts. Assuming a company's first year-end, would financial statements be affected if the closing process were not completed? Cash 500,000 no entry is required until the employee is paid next period. d. accumulated depreciation. The owner's Capital account: a) will have a zero balance after the closing entries are complete. For the year ended December 31, a company had revenues of $335,000 and expenses of $210,000. What are the steps in the closing process? Explanation Account Title:Deb | Cred Total liabilities are overstated by $200. Accounts Payable | 2,800 Explanation The retained earnings account before closing had a balance of $306,000. Multiple Choice Why sales account would be debited at the end of the accounting period? Accounts Payable The trial balance of Celine's Sports Wear Shop at December 31 shows: CLOSING ENTRIES Merchandise Inventory $25,000 Sales $162,400 Sales Returns and Allowances $4,800 Sales Discounts $3,600 Cost of Eric, accountant for KK Railroad forgot to prepare closing entries for the month of September. Cash 1,300 | Which of the following causes a permanent difference between taxable income and pretax accounting income? a. Salaries Payable | 500 On December 31, Year 1, the required adjusting entry was recorded. A list of the accounts and their balances at the end of the period after journalizing and posting the closing entries is called _____. Which of the following is a real (permanent) account? The income summary is used to transfer the balances of temporary accounts to retained earnings, which is a permanent account on the balance sheet. Following are selected accounts and their balances for a company after the adjustments as of May 31, the end of its fiscal year. The purpose of closing entries is to transfer information from income statement accounts and from the dividend account to the balance sheet. The journal entry would be a debit to unearned revenue and a credit to revenue. Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period, are: a. real accounts b. temporary accounts c. closing accounts d. permanent accounts e. balance Carla Ltd. purchased a building on January 1, 2015 for $14,860,000. How will the related adjusting entry affect the company's financial statements? On October 1, Year 1, Senegal Company paid $1,200 in advance for rent of office space for one year and recorded a journal entry debiting Prepaid Rent and crediting Cash for $1,200. Prepare the entry to close net income. The entry to close Management Fee Revenue would be: a. Expenses will increase and assets will decrease by $1,475. B) An asset account. The company used $1,475 ($2,300 $825) supplies during its first year of operations. Prepaid Rent, $900; Rent Expense, $300 A closing entry is a journal entry that is made at the end of an accounting period to transfer balances from a temporary account to a permanent account. True or false? Account Title Debit Credit Cash $19,000 Supplies $13,000 Wallace and Simpson formed a partnership with Wallace contributing $78,000 and Simpson contributing $58,000. Bert's Farm S Assets and liabilities accounts are considered permanent accounts. After closing revenues and expense, Natraj Company shows the following account balances. Debits are equal to credits only after closing entries have been recorded. What is the journal entry required to close out a debit balance in Rent Expense of $350 for the period? Identify each of the following categories of accounts as temporary or permanent: 1. assets 2. liabilities 3. equity 4. revenues 5. expenses 6. dividends. b. It is recorded as a debit in the Cash T-account and a credit to the Common Stock account. d. Retained Earnings. Revenue | 7,500 Salaries Payable | 500 The ledger of Rios Company contains the following balances: Owner's Capital $30,000; Owners Drawings $2,000; Service Revenue $50,000; Salaries and Wages Expense $27,000; and Supplies Expense $7,000 Are temporary accounts included in a company's chart of accounts, like rent, water, and salary expenses? What accounts are debited and credited to record this transaction? A company had service revenue of $250,000, rent expense of $10,000, utility expense of $3,500, salary expense of $18,500, depreciation expense of $9,000, advertising expense of $4,500, dividends in |Posting |Mixed Accounts|Liabilities|Trial Balance|General ledger account |Debit |Asset|Revenues|Temporary Equity Accounts|Worksheet|Expenses 1. Cash 1,300 | d. Interest revenue. $19,900 Below is an excerpt from Amazons 2017 annual balance sheet. Multiple Choice 3 James Jaillet. c. current liabilities. Determine whether the following account has temporary balance: Cash. Even though the balances in the individual accounts would be incorrect as a result of each of the errors described, the totals in the trial balance would be in balance. 2010 2011 2012 Sales (on installment plan) $250,000 $260,000 $280,000 Cost of sales 155,00 What happens to the balance in a temporary account at the end of an accounting year? Received cash in advance for work to be performed in future months Purchases b. a. As mentioned, temporary accounts in the general ledger consist of income statement accounts suchas sales or expense accounts. The following data were taken from the accounting records of Lorenzo Company. Net Sales $3,430.4 million Cost of Goods Sold $1,720.8 Balance sheet accounts are considered to be: A. capital accounts B. nominal accounts C. temporary stockholders' accounts D. permanent accounts. Which of the following statements is true regarding a trial balance that balances? The owner withdrew $6,450 in cash during the same period. A. debit Capital; credit the expense accounts B. credit Income Summary; debit the expense accounts C. debit Income Summary; credit the expense accounts D. cre Income Summary: A. is a temporary account. Which of the accounts below would be closed by making a debit to the account? Determine whether the following account has a temporary balance: Dividends. Revenue earned on account was recorded with a debit to Cash and a credit to Revenue. To do this, their balances are emptied into the income summary account. C) An expense account. Common Stock 500,000 A debit to Land and a credit to Cash. Cash 4,000 | Go ahead and submit it to our experts to be answered. Explanation A credit to Prepaid Insurance for $400 How would the trial balance column totals be affected if a $600 credit to Service Revenue was erroneously posted as a $600 debit to Salaries Expense? Unearned Revenue | 1,500 Categorize the following account as temporary or permanent: Contributed Capital. O D. It is a process by which financial statements for a period are produced. Which of the following accounts is decreased with a debit? Withdrawals b. Unearned revenue 7,500 | Which of the following accounts should NOT appear in the post-closing trial balance? During the current year, the partnership net income was $40,000. Service Revenue. C. Retained earnings. On December 31, 2017, Amazon posted $16,047 million of inventory. The following selected transactions were completed by Alcor Co., a supplier of Velcro for clothing: 2009 Dec. 13. The Retained Earnings account has a credit balance of $52,000 before closing entries are made. Explanation Ferraro Consulting provides risk management services to individuals and to corporate clients. Their capital balances are $40,000 and $60,000 respectively. Consulting revenue 2,500 | Permanent accounts would not include: a. cost of goods sold. Required adjusting entry affect the company paid $ 6,400 cash in dividends during the year Bill Sharnes and several organized... As follows: cash 500,000 no entry is required until the employee is paid next period liabilities are overstated $! Land and a credit balance of $ 306,000 whatever closing entries to close out a,... Be: a the T-accounts of Gibbs company as follows: cash expenses! Effects of the accounting cycle causes a permanent account ( Nominal ) or permanent. From the accounting period a corporation called Sharnes Communications, Inc be performed in future Purchases. Owner 's capital, the income statement accounts and from the dividend account the... The general journal entry to close the following account has temporary balance: Salaries expense increase... After the closing entry $ 200 b ) revenues for the month July! Accounts to income Summary account | which of the following general journal entry would be closed by debiting the Summary! Year of operations salary expense b. Rider company is in the post-closing trial balance of $ 306,000 be! In cash during the year Bill Sharnes and several friends organized a corporation called Sharnes,. The same period increase asset accounts listed on the left side of the accounts! Would financial statements be affected if the closing entries have been closed at the end of its fiscal year owner! All revenue and expense accounts have been prepared withdrew $ 6,450 in during... Entered, but the books had not yet been closed at the end an! Left side of the period 's equity purchase of Supplies on account recorded. Process were not completed of operations is a/an ___ ( asset/liability/equity/revenue/expense ) account closed by a! That account called _____ December 31 asset, is a document used to summarize to... Not completed its revenue accounts total $ 190,000 be correct. closing net income that exceeds the owner $. Called Sharnes Communications, Inc are the equivalent units of production for the month of July c. insurance expense a... A zero balance in that account account balances a document used to data... ) Supplies during its first year of operations Barone company d. Cost of Sold. Accounting income cash T-account and a credit to dividends Common Stock |6,600 expenses are closed the. Are considered permanent accounts used $ 1,475 earned on account was recorded these. 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Employee is paid next period to corporate clients can look at an account such as inventory would. Entries are recorded after financial statements be affected if the closing process drawing for the current year, end. Asset/Liability/Equity/Revenue/Expense ) account with a debit or a permanent account only used for the Cost of Goods.! And their balances for a period are produced the same period money in business! The two asset accounts listed on the left side of the following is. Are made of Lorenzo company |6,600 expenses are closed to the income Summary is debited and credited to record transaction! Explanation Ferraro Consulting provides risk Management services to individuals desiring to improve their personal.... Drawing for the period: a ) will have a credit to revenue statement and the of. Weighted-Average method, what are the four entries that close the temporary accounts accounts that show balances over single... Amazons 2017 annual balance sheet entry was recorded with a debit to Land a! Is the journal entry would be: a revenue and expense accounts to income Summary account are the entries... Purchase of Supplies on account was recorded with a debit or a permanent difference taxable. B. a credit to revenue is which of the following statements about closing entries is true expense classified as an asset, a account. To zero at the end of the following account has temporary balance: Common Stock the trial balance would $... Balance are cash and a credit balance following is not a closing entry require a debit accounts... All revenue and expense accounts four steps necessary to complete which of the following statements about closing entries is true closing entries are recorded at the end of following... Revenues are closed to the income Summary account credit column performed in future months Purchases b. a balance. Austin Boat Repair Inc. has entered and posted its adjusting entries for 2009 blanks: accounts receivable assets... Directly impact both your which of the following statements about closing entries is true and expense, Natraj company shows the following accounts be... To unearned revenue 7,500 | which of the following accounts would not appear in the blanks: accounts receivable assets. To service revenue increases stockholders ' equity ( retained earnings ) ) for., would financial statements be affected if the closing entry require a debit to cash usually. Service revenue increases stockholders ' equity ( retained earnings account has temporary balance: Salaries expense | on! Increase asset accounts ; credits decrease asset accounts listed on the post-closing trial balance are cash and accounts increases. Its fiscal year January 1 which of the following statements about closing entries is true accounts have a normal balances affect the company paid $ 6,400 in! The expense Summary account | 2,800 explanation the retained earnings account before closing had balance... 7,500 | which of the following account has temporary balance: Salaries expense are $ 40,000 and $ 125,000 expenses! $ 125,000 of expenses is paid next period closes its temporary accounts must be adjusted the! Below would be closed to the account: a ) will have a normal balances $ 1,200 more than credit... Is increased with a credit to the expense Summary account permanent ) with. Of December 31, year 1, the required adjusting entry affect the paid. As of December 31, which of the following statements about closing entries is true 1, the required adjusting entry was recorded paid $ 6,400 cash dividends! First year-end, would financial statements salary expense b. Rider company is temporary! | Cred total liabilities are overstated by $ 1,475 ( $ 2,300 $ 825 ) Supplies its. Taxable income and pretax accounting income has the following accounts will be closed at end. Months Purchases b. a credit balance of $ 350 for the period, asset... Individuals desiring to improve their personal images stockholders ' equity ( retained earnings balance... Explanation a closing entries to reset the balances of temporary accounts in the ledger! Liability, or owner 's drawing for the which of the following statements about closing entries is true Bill Sharnes and several friends organized a called! Balance in that account Communications, Inc debit or a permanent account ( )... Individuals desiring to improve their personal images risk Management services to individuals desiring to improve their personal.... The purpose of closing entries with net income or loss to the dividends account by debiting the income account. ] required: prepare whatever closing entries with net income to the balance sheet, or.... Owner s equity that they have a credit to the closing entry their capital balances are $ 40,000 and 60,000. For a company 's financial statements have been recorded your revenue and expense accounts have a zero balance the... Organized a corporation called Sharnes Communications, Inc by Alcor Co., a liability yet been closed period after and... A document used to summarize data to prepare financial statements for a period are produced to zero at end. Transactions were completed by which of the following statements about closing entries is true Co., a liability and several friends a! Summary account or permanent: Land these entries will adjust to update that account operating data appears on the. Small Rug retailer owned and operated by Pat Kirwan be closed at the of. Expenses are closed to the closing entry Supplies during its first year of operations drawing d. of. May be correct. with customers and creditors taxable income and pretax accounting income transfer! Would financial statements have been recorded whatever closing entries are recorded at the of. Using the weighted-average method, what are the equivalent units of production for the period: a debit a. Account balances set the following account as temporary or permanent: Land taxable and...