Answer :
Certainly! Let's walk through the preparation of the closing entries step-by-step. We need to close the revenue, expense, and dividend accounts to the Retained Earnings account at the end of the period. Below is a detailed step-by-step explanation:
### Step 1: Close Revenue Account
To close the revenue account, we will debit the revenue account to bring its balance to zero and credit the Income Summary account.
Journal Entry:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Trucking revenue & \[tex]$124,000 & \\ & Income Summary & & \$[/tex]124,000 \\
\hline
\end{tabular}
### Step 2: Close Expense Accounts
Next, we close out the expenses. We will credit each expense account to bring their balances to zero and debit the Income Summary account for the total expenses.
Total expenses are:
- Accumulated Depreciation-Trucks: \[tex]$89,400 - Depreciation Expense-Trucks: \$[/tex]13,200
- Salaries Expense: \[tex]$3,600 - Office Supplies Expense: \$[/tex]2,800
Total Expenses = \[tex]$89,400 + \$[/tex]13,200 + \[tex]$3,600 + \$[/tex]2,800 = \[tex]$109,000 Journal Entry: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Income Summary & \$[/tex]109,000 & \\
& Accumulated Depreciation-Trucks & & \[tex]$89,400 \\ & Depreciation Expense-Trucks & & \$[/tex]13,200 \\
& Salaries Expense & & \[tex]$3,600 \\ & Office Supplies Expense & & \$[/tex]2,800 \\
\hline
\end{tabular}
### Step 3: Close Income Summary to Retained Earnings
The Income Summary now contains the net income for the year, which is calculated as the difference between total revenue and total expenses.
Net Income = Trucking Revenue - Total Expenses = \[tex]$124,000 - \$[/tex]109,000 = \[tex]$15,000 Journal Entry: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Income Summary & \$[/tex]15,000 & \\
& Retained Earnings & & \[tex]$15,000 \\ \hline \end{tabular} ### Step 4: Close Dividends Account to Retained Earnings Finally, we close the dividends to the Retained Earnings account. This reduces the Retained Earnings by the amount of dividends paid. Dividends = \$[/tex]62,200
Journal Entry:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Retained Earnings & \[tex]$62,200 & \\ & Dividends & & \$[/tex]62,200 \\
\hline
\end{tabular}
### Summary of Closing Entries
Let's summarize all the closing entries:
1. Close Revenue Account:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Trucking revenue & \[tex]$124,000 & \\ & Income Summary & & \$[/tex]124,000 \\
\hline
\end{tabular}
2. Close Expense Accounts:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Income Summary & \[tex]$109,000 & \\ & Accumulated Depreciation-Trucks & & \$[/tex]89,400 \\
& Depreciation Expense-Trucks & & \[tex]$13,200 \\ & Salaries Expense & & \$[/tex]3,600 \\
& Office Supplies Expense & & \[tex]$2,800 \\ \hline \end{tabular} 3. Close Income Summary to Retained Earnings: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Income Summary & \$[/tex]15,000 & \\
& Retained Earnings & & \[tex]$15,000 \\ \hline \end{tabular} 4. Close Dividends to Retained Earnings: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Retained Earnings & \$[/tex]62,200 & \\
& Dividends & & \$62,200 \\
\hline
\end{tabular}
These journal entries ensure that all temporary accounts are reset to zero for the new accounting period and the Retained Earnings account reflects the changes for the year.
### Step 1: Close Revenue Account
To close the revenue account, we will debit the revenue account to bring its balance to zero and credit the Income Summary account.
Journal Entry:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Trucking revenue & \[tex]$124,000 & \\ & Income Summary & & \$[/tex]124,000 \\
\hline
\end{tabular}
### Step 2: Close Expense Accounts
Next, we close out the expenses. We will credit each expense account to bring their balances to zero and debit the Income Summary account for the total expenses.
Total expenses are:
- Accumulated Depreciation-Trucks: \[tex]$89,400 - Depreciation Expense-Trucks: \$[/tex]13,200
- Salaries Expense: \[tex]$3,600 - Office Supplies Expense: \$[/tex]2,800
Total Expenses = \[tex]$89,400 + \$[/tex]13,200 + \[tex]$3,600 + \$[/tex]2,800 = \[tex]$109,000 Journal Entry: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Income Summary & \$[/tex]109,000 & \\
& Accumulated Depreciation-Trucks & & \[tex]$89,400 \\ & Depreciation Expense-Trucks & & \$[/tex]13,200 \\
& Salaries Expense & & \[tex]$3,600 \\ & Office Supplies Expense & & \$[/tex]2,800 \\
\hline
\end{tabular}
### Step 3: Close Income Summary to Retained Earnings
The Income Summary now contains the net income for the year, which is calculated as the difference between total revenue and total expenses.
Net Income = Trucking Revenue - Total Expenses = \[tex]$124,000 - \$[/tex]109,000 = \[tex]$15,000 Journal Entry: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Income Summary & \$[/tex]15,000 & \\
& Retained Earnings & & \[tex]$15,000 \\ \hline \end{tabular} ### Step 4: Close Dividends Account to Retained Earnings Finally, we close the dividends to the Retained Earnings account. This reduces the Retained Earnings by the amount of dividends paid. Dividends = \$[/tex]62,200
Journal Entry:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Retained Earnings & \[tex]$62,200 & \\ & Dividends & & \$[/tex]62,200 \\
\hline
\end{tabular}
### Summary of Closing Entries
Let's summarize all the closing entries:
1. Close Revenue Account:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Trucking revenue & \[tex]$124,000 & \\ & Income Summary & & \$[/tex]124,000 \\
\hline
\end{tabular}
2. Close Expense Accounts:
\begin{tabular}{|l|l|l|l|}
\hline
Date & Account Title & Debit & Credit \\
\hline
December 31 & Income Summary & \[tex]$109,000 & \\ & Accumulated Depreciation-Trucks & & \$[/tex]89,400 \\
& Depreciation Expense-Trucks & & \[tex]$13,200 \\ & Salaries Expense & & \$[/tex]3,600 \\
& Office Supplies Expense & & \[tex]$2,800 \\ \hline \end{tabular} 3. Close Income Summary to Retained Earnings: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Income Summary & \$[/tex]15,000 & \\
& Retained Earnings & & \[tex]$15,000 \\ \hline \end{tabular} 4. Close Dividends to Retained Earnings: \begin{tabular}{|l|l|l|l|} \hline Date & Account Title & Debit & Credit \\ \hline December 31 & Retained Earnings & \$[/tex]62,200 & \\
& Dividends & & \$62,200 \\
\hline
\end{tabular}
These journal entries ensure that all temporary accounts are reset to zero for the new accounting period and the Retained Earnings account reflects the changes for the year.