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    cris89's Avatar
    cris89 Posts: 1, Reputation: 1
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    #1

    Apr 24, 2010, 08:24 AM
    Need help with closing entries!
    Closing entries for a corporation; workbook problem. I understand the revenue and expense part, but I do not know what to do with the common stock, retained earnings, and dividends. Can someone please help me?

    Prepare closing entries for the following:
    Merchandise Inventory $60,000 COGS $235,700
    Common Stock 75,000 Selling Exp. 16,000
    Retained Earnings 45,000 Admin. Exp. 38,000
    Dividends 18,000 Inc. Tax Exp. 30,000
    Sales Returns & Allow. 12,000
    Sales Discount 15,000
    Sales 390,000
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #2

    Apr 26, 2010, 08:12 AM

    Balance sheet Accounts are not closed because they are permanent accounts!! Only Income Statement accounts are closed because they are temporary accounts!!

    To close an account you need to do the following: for revenue accounts you will debit the account for the balance and Credit Income Summary Account for the amount. For Expense Accounts you do the opposite, which means you will Credit the account for the balance and Debit Income Summary for the amount.

    Next you will compute the balance in Income Summary account, and if you have a credit balance you will Debit Income Summary account for the amount and Credit Retained Earnings account for the amount.

    The effect is that you are closing your temporary accounts at the end of an accounting period to your permanent acccounts to start a new accounting period.
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