Brief Exercise 4-5: The Ledger Of Rios Company Contains The

Brief Exercise 4-5the Ledger Of Rios Company Contains The Following Ba

Using the ledger balances of Rios Company, perform the closing entries in the order provided: (1) Close revenue accounts; (2) Close expense accounts; (3) Close net income/(loss); (4) Close drawings. Follow the journalizing and posting procedures for each step accordingly, listing each account involved, such as Salaries and Wages Expense, Supplies Expense, Service Revenue, Owner’s Drawings, Income Summary, and Owner’s Capital.

Paper For Above instruction

The process of closing the books is an essential part of the accounting cycle, ensuring that temporary accounts are reset to prepare for the next accounting period. In the case of Rios Company, the balances reflect the financial activities for the period, including revenues, expenses, owner’s withdrawals, and capital contributions. To systematically close these accounts, specific journal entries are prepared and posted to clear revenues and expenses, transfer net income or loss to owner’s equity, and close owner’s drawings.

First, the revenue accounts, primarily Service Revenue, are closed by debiting the revenue account and crediting Income Summary. This consolidates the revenue into a single account, simplifying net income calculation. The journal entry would be:

Debit Service Revenue $50,657; Credit Income Summary $50,657.

Next, the expense accounts—Salaries and Wages Expense and Supplies Expense—are closed by crediting these expense accounts and debiting Income Summary. For example:

Debit Income Summary $34,131 (sum of expenses: $27,423 + $6,708); Credit Salaries and Wages Expense $27,423; Credit Supplies Expense $6,708.

Then, determine net income or loss by totaling revenues and expenses. Assuming revenues exceed expenses, the net income is transferred by debiting Income Summary and crediting Owner’s Capital:

Debit Income Summary $16,526; Credit Owner’s Capital $16,526.

Finally, the owner’s drawings are closed to Owner’s Capital by debiting Owner’s Capital and crediting Owner’s Drawings. For example:

Debit Owner’s Capital $1,917; Credit Owner’s Drawings $1,917.

This cyclical process ensures that all temporary account balances are reset to zero, allowing accurate tracking of subsequent periods. The closing entries are fundamental in preparing accurate financial statements and maintaining the integrity of an entity’s accounting records.

References

  • Schwartz, R., & Fraser, P. (2018). Financial Accounting: Tools for Business Decision Making. McGraw-Hill Education.
  • Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2019). Financial Accounting. John Wiley & Sons.
  • Libby, T., Libby, R., & Short, D. (2021). Financial Accounting. Pearson.
  • AccountingTools. (2020). Closing Entries. Retrieved from https://www.accountingtools.com/articles/closing-entries.html
  • Fess, P. (2020). The Complete Guide to Closing the Books. Journal of Accountancy.
  • Principles of Financial Accounting. (2022). McGraw-Hill Irwin.
  • Gibson, C. H. (2019). Financial Reporting & Analysis. Cengage Learning.
  • Higgins, R. C. (2020). Analysis for Financial Management. McGraw-Hill Education.
  • Messier, W. F., Glover, S. M., & Prawitt, D. F. (2019). Auditing & Assurance Services. McGraw-Hill Education.
  • Accounting Coach. (2021). Closing Entries. Retrieved from https://www.accountingcoach.com/closing-entries/explanation

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