The income statement for the Monty Golf Club inc, for the month ended July 31 shows Service Revenue $16,880,5a laries and Wages Expense \$9,410, Maintenance and Repairs Expense $3,320, and Income Tax Expense $1,380. The statement of retained earnings shows an opening balance for Retained Earnings of $24,630 and Dividends $2.000. Jestion 3 of 5 -12 Prepare closing journal entries. (List all debit entries before credit entries. If no entry is required, sedect “No Entry” for the occount tibles and enter 0 for the amounts. Credit account tities are outomatically indented when the amount is entered. Do not indent manually.)
The Correct Answer and Explanation is :
To prepare the closing journal entries for Monty Golf Club Inc., follow these steps to close the temporary accounts (revenues, expenses, and dividends) into Retained Earnings.
Step-by-Step Closing Journal Entries:
- Close Revenue Account:
Transfer the balance of the Service Revenue account to the Income Summary.
Debit: Service Revenue $16,880
Credit: Income Summary $16,880 - Close Expense Accounts:
Transfer the balances of all expense accounts to the Income Summary.
Debit: Income Summary $14,110
(sum of all expenses: $9,410 + $3,320 + $1,380)
Credit: Salaries and Wages Expense $9,410
Credit: Maintenance and Repairs Expense $3,320
Credit: Income Tax Expense $1,380 - Close Income Summary:
Transfer the net income from the Income Summary to Retained Earnings.
Net Income = Service Revenue - Total Expenses
Net Income = $16,880 - $14,110 = $2,770
Debit: Income Summary $2,770
Credit: Retained Earnings $2,770 - Close Dividends:
Transfer the balance of the Dividends account to Retained Earnings.
Debit: Retained Earnings $2,000
Credit: Dividends $2,000 Explanation:
- Temporary Accounts: Temporary accounts (revenues, expenses, and dividends) accumulate balances during the period and must be closed to ensure they begin the next period with zero balances.
- Income Summary Account: This intermediary account is used to summarize the income and expenses, facilitating the calculation of net income before transferring it to Retained Earnings.
- Retained Earnings Impact: Closing entries adjust Retained Earnings for the period’s net income and dividends, updating the equity section of the balance sheet.
- Balancing: Closing all temporary accounts ensures that the accounting equation remains balanced and ready for the next period.
After posting these entries, all temporary accounts will have zero balances, and the Retained Earnings account will reflect the updated balance for the next period.