How to prepare a closing entry
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Given are the adjusted account balances as of December 31st, 2001:
cash $45,000
capital $85,000
accounts payable $33,000
service revenue $84,000
depreciation expense-building $12,000
salary expense $29,000
unearned service revenue $24,000
pre paid rent $9,000
supplies expense $6,000
note payable $70,000
land $65,000
accounts receivable $32,000
accumulated depreciation -building $12,000
interest revenue $15,000
interest payable $3,000
withdrawals $20,000
rent expense $15,000
building $85,000
supplies $4,000
interest expense $4,000
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This solution is comprised of a detailed explanation to answer how to prepare a closing entry.
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The purpose of closing entry is to close out the temporary accounts such as revenues, expenses, and withdrawals into the owner's equity account. This process is facilitated by the introduction of a temporary account created for closing process. This account is known as the income summary account. For revenue, we will need to debit revenue and ...
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