Chapter 6
The Accounting Cycle: Statements and Closing Entries
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MP Consulting
Adjusted Trial Balance
January 31, 2016
Account Titles
DR
CR
Cash
$3,800
Accounts Receivable
4,000
Prepaid Insurance
1,100
Equipment
8,300
Accumulated Depreciation
$150
Accounts Payable
1,250
Interest Payable
25
Unearned Revenue
1,800
Bank Loan
2,500
Parish, Capital
10,300
Parish, Drawings
2,000
Service Revenue
4,500
Depreciation Expense
150
Insurance Expense
100
Interest Expense
25
Rent Expense
800
Telephone Expense
250
Total
$20,525 $20,525
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Figure 6.13
Notice that the revenue balance is a credit, the expense balances are debits and the owner’s draw-
ings balance is also a debit. To reset (close) the balances back to zero to prepare for the next
accounting period, we must decrease the value of each of these accounts. Thus, revenue will be
debited, expenses will be credited and owner’s drawings will be credited. In the context of closing
entries, the terms “close,” “reset” and “zero out” can be used interchangeably.
Figure 6.14 illustrates the journal entries to close the accounts directly to the capital account.The
steps involved are explained.
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