Question

Brett Teddy Enterprises had the following accounts and normal balances listed on its December 31st adjusted trial balance: Service Revenue, \(21,900; Salaries Expense, \)6,000; Rent Expense, \(4,400; Advertising Expense, \)3,100; and Dividends, $6,900. Journalize the closing entries for Teddy Enterprises.

Short answer

Closing entries are as follows:

	Journal entry
Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$21,900
	Income Summary		$21,900
	To close revenue.
Dec. 31	Income Summary	$13,500
	Salaries Expense		$6,000
	Rent Expense		$4,400
	Advertising Expense		$3,100
	To close expenses.
Dec. 31	Income Summary	$8,400
	Retained Earnings		$8,400
	To close Income Summary
Dec. 31	Retained Earnings	$6,900	$6,900
	Dividends
	To close Dividends

Step-by-step solution

Explanation on Closing Entry

Closing entry is recorded at the end of the period to close balances of permanent account.

Calculation of net income

Net income is calculated as follows:

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{TotalRevenues}-\mathbf{TotalExpenses} \\ \mathbf{=}\mathbf{\$}\mathbf{21}\mathbf{,}\mathbf{900}-\mathbf{\$}\mathbf{13}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{400} \end{gathered}$$