My teacher gave me the following directions. Listed below are account balances (in millions) taken from the records of Symphony stores. All of these are permanent accounts, except the last two that have yet to be closed. the installment receivables are current. Symphony uses a perpetual inventory system.
Debit Credit
Accounts receivable-trade 680 D
Building and equipment 920D
Cash Checking 34D
installment receivables 65D
interest receivable 30D
inventory 16D
land 150D
notes receivable long term 450D
petty cash funds 5D
prepaid expenses 20D
supplies 8D
trademark 40D
accounts payable trade 560C
accumulated depreciation 80C
additional paid in capital common 485C
allowance for uncollectible accounts 20C
cash dividends payable 30C
common stock, at par 15C
deferred gross profit 15C
income tax payable 65C
notes payable long term 800C
retained earnings 48C
unearned revenues 40C
cash dividends declared common 120D
net income current year 380C
TOTALS 2538 2538




My questions are:
Is deferred gross profit the contra account of installment receivables?
How do I close cash dividends declared common and net income current year?

ROLCAM

My questions are:
Is deferred gross profit the contra account of installment receivables?
How do I close cash dividends declared common and net income current year?

ANSWERS:

1) NO !! There is no such thing as deferred gross profit account.

2) a)Cash dividends are closed by paying them.
2) b) You close net income current year by transferring it to RETAINED EARNINGS.

jgrello

There is obviously such a thing because my accounting teacher wrote it as one.

ROLCAM

Gross Profit is the net amount of
REVENUE less COST OF GOODS.
This has nothing to do with
Instalment Receivables.
The answer is NO. It is not a contra account.

rehmanvohra

You are right, jgrello and so is your teacher. Deferred Gross Profit is a contra account.

Closing entries:

Debit Income Summary
Credit Retained Earnings

Debit Retained Earnings
Credit Dividends declared

morgaine300

Rolcam, FYI --

Deferred gross profit is related to installment sales. It's a more advanced topic of revenue recognition. I myself don't remember how to do it and would not have known it was a contra account -- I just vaguely recall that the concept exists and what it's related to. If it's something you haven't seen for a while, I can see why it would be easy to forget it even exists.

If you're interested:
http://www.epcc.edu/Portals/256/pdf/...lmentSales.pdf