Response:
Closing Journal Entries:
1. Debit Fees Earned $56,000
Credit Income Statement $56,000
To finalize the account for the period.
2. Debit Income Statement $25,000
Credit Depreciation Expense $25,000
To finalize the account for the period.
3. Debit Income Statement $23,000
Credit Salaries Expense $23,000
To finalize the account for the period.
4. Debit Income Statement (Retained Earnings) $2,000
Credit Dividends $2,000
To finalize the account for the period.
Clarification:
Closing entries involve journalizing actions to wrap up temporary accounts, such as revenue and expenses, to the Income Statement. This ensures that only permanent accounts remain for the Balance Sheet moving forward. Temporary accounts do not carry over to subsequent periods unlike permanent accounts.
These closing entries transfer all revenue and expense entries at the conclusion of an accounting period to an income summary account, which is used to compute the financial performance metrics (which include gross profit and net income or loss) for that period.
