Book 2 - Chapter 8

Service revenue and depreciation expense are temporary accounts and would not appear in a
post-closing trial balance.

The debit and credit totals of a worksheet income statement column should be the same
amounts posted as debit and credit entries to the income summary account. The total of the
debit column is the total of all temporary items that reduce net income. The total of the credit
column is the total of all temporary items that increase net income.

10.

(1)	Close revenue accounts into the income summary account (debit each revenue, credit income summary for the total).
(2)	Close expense accounts into the income summary account (debit income summary for the total, credit each expense account).
(3)	Close the balance of income summary into the capital account.
(4)	Close the drawing account into the capital account (debit capital, credit drawing).

11.

The drawing account is not an expense. Therefore, it does not belong in income summary
because it is not an item that affects net income. Rather, the drawing account shows reductions
in the capital account because of assets that are removed from the business by the owner for
personal use. Therefore, the drawing account is closed directly into the capital account.

Reinforcement Problems

16-1.

Account Name	Permanent	Temporary	Closed	Appears on the:
				Balance Sheet	Income Statement
Cash
Unearned Revenue
Accumulated Depreciation
Fees Earned
Insurance Expense
Prepaid Insurance
Income Summary				—	—
Supplies
Supplies Expense
Owner's Capital
Rent Expense
Depreciation Expense
Interest Revenue
Accounts Payable
Office Equipment
Drawing				—	—

Note: Notice that only temporary (income statement accounts and withdrawals) are closed.
Permanent (balance sheet) accounts are not closed.

Learning Goal 16, continued

SOLUTIONS

Section II · Completing the Accounting Cycle

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