Chapter 6
The Accounting Cycle: Statements and Closing entries
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date
Account Title and explanation
Pr
debit
Credit
2016
Jan 31 Service revenue
400
4,500
Parish, Capital
300
4,500
To close revenue
Jan 31 Parish, Capital
300
1,325
Depreciation expense
510
150
insurance expense
515
100
interest expense
520
25
rent expense
540
800
Telephone expense
550
250
To close expenses
Jan 31 Parish, Capital
300
2,000
Parish, Drawings
310
2,000
To close owner's drawings
________________
Figure 6.14
1
Zero out the revenue account
The transaction is recorded by debiting (decreasing) the current revenue balance with $4,500 and
crediting (increasing) owner’s capital with the same amount.The revenue account is now reduced
to zero.
2
Zero out the expense accounts
The transaction is recorded by crediting (decreasing) the current expense balances and debiting
(decreasing) owner’s capital with the total of all expense amounts. The expense accounts are now
reduced to zero. Notice in Figure 6.14 that instead of closing each expense account individually to
owner’s capital, all expenses were listed in one transaction. This saves time and effort (imagine if
the company had 50 or more expense accounts).The debit to owner’s capital is the total of all the
expenses.
3
Zero out the owner’s drawings account
The transaction is recorded by crediting (decreasing) the current owner’s drawings balance with
$2,000 and debiting (decreasing) owner’s capital with the same amount. The owner’s drawings
account is now reduced to zero.
1
2
3
