Closing entries are required to be passed to ensure accounting records show true and fair view of the financial position of the company. Therefore, role of Closing Entries are very important. The following Closing Entries Problems with Solution will help you greatly in understanding this concept very well.
Problem 1
Amith and Anil are running a shoe manufacturing business. Following is the unadjusted trial balance received from their accountant.
| Debit Balances | Credit Balances | ||
| Cash | Rs.40,000 | Accounts payable | Rs.85,000 |
| Accounts receivable | 350,000 | Sales revenue | 850,000 |
| Prepaid insurance | 40,000 | Purchase returns | 90,000 |
| Purchases | 690,000 | Capital | ? |
| Utility expense | 25,000 | ||
| Rent expense | 180,000 | ||
| Office equipment | 400,000 | ||
| Total | 1,725,000 | Total | 1,725,000 |
Data for Adjustment: (1) Prepaid insurance Rs.15,000. (2) Depreciation expense Rs.30,000. (3) Inventory ending Rs.50,000. (4) Unpaid salaries Rs.15,000. (6) Unrecorded sales Rs.50,000.
As the accountant is not well experienced, Anil and Amith seek your assistance in passing out necessary closing entries.
Solution
Amith and Anil
Closing Entries
For the Period Ended June 30, 202X
| Date | Particulars | Folio | Debit | Credit |
| (a) | Expense and revenue summary Purchases | 965,000 | 690,000 | |
| Utility expense | 25,000 | |||
| Rent expense | 180,000 | |||
| Insurance expense | 25,000 | |||
| Salaries expense | 15,000 | |||
| Depreciation expense | 30,000 | |||
| (To close all expense accounts) | ||||
| (b) | Sales revenue | 900,000 | ||
| Purchase returns | 90,000 | |||
| Merchandise inventory | 50,000 | |||
| Expense and revenue summary | 1,040,000 | |||
| (To close all revenue accounts) | ||||
| (c) | Expense and revenue summary Capital (To close the expense and revenue summary account) | 75,000 | 75,000 |