Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 5-6

TIP: The closing process for a merchandiser includes the following:

1. entry to (a) debit Sales for its ending balance, debit any other revenue or gain accounts for their ending balances, and (b) credit Income Summary. This entry closes the temporary account(s) with credit balance(s).
2. entry to (a) credit contra sales items (Sales Returns and Allowances and Sales Discounts) for their ending balances, (b) credit operating expense accounts for their ending balances, and (c) credit interest expense and any other expense or loss accounts for their ending balances, and (d) debit Income Summary.
3. entry to close the balance of the Income Summary account to the owner's capital account.
4. entry to credit the owner's drawing account for its ending balance and debit the owner's capital account. This entry closes the owner's drawing account to the owner's capital account.