Therefore, credit all these expense and debit accounts with their respective amounts. Supplies Expense O c. Withdrawals d. Prepaid Insurance Balance sheet accounts are called real or permanent accounts because they continue to accumulate on the balance sheet from period to period for the life of the account. Therefore, accounts payable is a critical metric to analyze when a company is up for consideration for possible merger or acquisition activity. answered May 11, 2016 by geico . Accounting > Closing Entries Prepaid insurance. A contra account is an account used in a general ledger to reduce the value of a related account. Expenses are resources used up. Why Expenses Are Debited Expenses cause owner's equity to decrease. Journal Entry 5 automatically debits office supplies expense for $1,000 and credits accounts payable for $1,000. At the beginning of April, Logan Enterprises had a $400 balance in the Supplies account. At the end of the accounting period, the balance in the account Supplies will be adjusted to be the amount on hand, and the amount of the adjustment will be recorded in Supplies Expense. To continue with the preceding example, the $500 entry would reverse in the following month, with a credit to the office supplies expense account and a debit to the accrued expenses liability account. 3. It is done by debiting income summary account and crediting various expense accounts. Close these accounts by debiting income summary for an amount equal to the combined debit balances of all eight expense accounts and by crediting each expense account for an amount equal to its own debit balance. At the end of each fiscal year, a company prepares for the new fiscal year by closing its books. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. Close Expense accounts to Income Summary by debiting Income Summary and crediting Expense accounts. Office supplies expense. Since $763 of supplies were used up, the supplies expense is $763. The retained earnings account is #33 and the income summary account is #34 in the ledger of PS Music. Write the worksheet information on the form in Exam Figure 1.) b. Therefore, debit income summary account by $1,402,500. b. The normal balance for the supplies expense account is a debit balance. Close the expense account into the income statement at the end of a fiscal year or accounting period. At April 30, the company had $350 of supplies on hand. A contra account's natural balance is the opposite of the associated account. Supplies Expense c. Fees Revenue d. Accumulated Depreciation Which of the following accounts should be closed to Income Summary at the end of the fiscal year? For each of these could someone elaborate on how they got the answer. Account Debit: Credit: Income Summary 268,050 Sales Discounts: 2,000 A corresponding credit entry is made that will reduce an asset or increase a liability. You’ll need the following adjustment information: a. P. Woodsley counted the supplies on May 31 and found that the supplies on hand were $342.92. Since owner's equity's normal balance is a credit balance, an expense must be recorded as a debit. In other words, debiting an expense account increases the balance instead of decreasing it like most other equity accounts. $763 of supplies were used up in January. The outcome of a nominal account is either profit or loss, which is then ultimately transferred to the capital account. Best answer. How do you close the expense accounts? accounting-and-taxation; 0 Answers. 2. Salaries Expense b. d. $550. Unearned revenue trading account or profit and loss account rather it is closed in the capital account of the owner which is reported in the statement of financial position. 142. Expense accounts are considered contra equity accounts because their balance decreases the overall equity balance. Income Statement accounts are called nominal or temporary accounts because income statement accounts are closed at the end of a reporting period to bring the balances to zero. B. Lippe Equipment Repair Service's total assets on May 31 $ 36,190. Closing entry 2: Mr. Green has eight income statement accounts with debit balances; they are all expense accounts. $400. Worksheet (Use the information from the trial balance in Exam Figure 2. Close Income Summary to Capital account by debiting Income Summary and crediting Capital account. The following table shows the way this transaction is recorded. The four basic steps in the closing process are: Closing the revenue accounts —transferring the credit balances in the revenue accounts to a clearing account called Income Summary. When supplies are purchased, the amount will be debited to Supplies. 0 votes. $350. 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