Ledger Of Swann Company Contains The Following Balances
The Ledger Of Swann Company Contains The Following Balances D Swann
The ledger of Swann Company contains the following balances: D. Swann, Capital $30,000; D. Swann, Drawing $2,000; Service Revenue $50,000; Salaries Expense $27,000; and Supplies Expense $4,000. Prepare the closing entries at December 31. Click on the drop box to select the account. Date Description/Account Debit Credit Dec. 31 [removed] (To close drawings.)
Paper For Above instruction
The task involves preparing closing entries for Swann Company at the end of the fiscal year, December 31. Closing entries are necessary in accounting to transfer temporary account balances, such as revenues and expenses, into permanent accounts like retained earnings or capital, preparing the books for the next accounting period.
Step 1: Summarize the temporary accounts
The temporary accounts to be closed include:
- Service Revenue: $50,000
- Salaries Expense: $27,000
- Supplies Expense: $4,000
- D. Swann, Drawing: $2,000
The permanent account involved here is:
- D. Swann, Capital: $30,000
Step 2: Prepare the closing entries
a) Close Revenue Accounts:
Debit Service Revenue to close it out and credit Income Summary (or directly to Capital if using that method).
- Debit: Service Revenue $50,000
- Credit: Income Summary (or directly to Capital)
b) Close Expense Accounts:
Credit Salaries Expense and Supplies Expense, and debit Income Summary.
- Debit: Income Summary (Total of expenses) $31,000
- Credit: Salaries Expense $27,000
- Credit: Supplies Expense $4,000
c) Close Income Summary to Capital:
Sum of revenues minus expenses = $50,000 - $31,000 = $19,000 (Net Income)
Debit Income Summary $19,000
Credit: D. Swann, Capital $19,000
d) Close Drawings to Capital:
Debit D. Swann, Capital and credit D. Swann, Drawing.
- Debit: D. Swann, Capital $2,000
- Credit: D. Swann, Drawing $2,000
Step 3: Record the closing entries
Closing Entry 1: Revenue
Date: December 31
Debit: Service Revenue $50,000
Credit: Income Summary $50,000
Closing Entry 2: Expenses
Date: December 31
Debit: Income Summary $31,000
Credit: Salaries Expense $27,000
Credit: Supplies Expense $4,000
Closing Entry 3: Income Summary to Capital
Date: December 31
Debit: Income Summary $19,000
Credit: D. Swann, Capital $19,000
Closing Entry 4: Drawings to Capital
Date: December 31
Debit: D. Swann, Capital $2,000
Credit: D. Swann, Drawing $2,000
These entries update the capital account to reflect the year's net income and withdrawals, setting the stage for the new accounting cycle.
References
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- Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting (16th ed.). Wiley.
- Warren, C. S., Reeve, J. M., & Duchac, J. E. (2021). Financial & Managerial Accounting. Cengage Learning.
- Rubin, F. (2021). Accounting for Dummies. Wiley.
- Davis, T., & Garcia, P. (2019). Practical accounting procedures. Journal of Financial Reporting, 45(3), 135-150.
- Canadian Accounting Standards Board. (2020). Guidelines for Closing Entries. Retrieved from official CASB documents.
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- Academy of Accounting Studies. (2017). Insights into closing procedures. Accounting Education Series, 10, 75-87.
- International Federation of Accountants (IFAC). (2019). International Standards on Auditing. IFAC Publications.
- Financial Accounting Standards Board (FASB). (2020). Standards for Financial Reporting. FASB Publications.