Closing Entries Problems and Solution

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 BalancesCredit Balances
CashRs.40,000Accounts payableRs.85,000
Accounts receivable350,000Sales revenue850,000
Prepaid insurance40,000Purchase returns90,000
Purchases690,000Capital?
Utility expense25,000
Rent expense180,000
Office equipment400,000
Total1,725,000Total1,725,000

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

DateParticularsFolioDebitCredit
(a)Expense and revenue summary Purchases965,000690,000
Utility expense25,000
Rent expense180,000
Insurance expense25,000
Salaries expense15,000
Depreciation expense30,000
(To close all expense accounts)
(b)Sales revenue900,000
Purchase returns90,000
Merchandise inventory50,000
Expense and revenue summary1,040,000
(To close all revenue accounts)
(c)Expense and revenue summary Capital (To close the expense and revenue summary account)75,00075,000