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How to prepare a closing entry

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

Solution Preview

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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This solution is comprised of a detailed explanation to answer how to prepare a closing entry.

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