The ledger of Rios Company contains the following balances: Retained Earnings $29,000; Dividends $2,000; Service Revenue $52,000; Salaries and Wages Expense $27,000; and Supplies Expense $8,000.Prepare the closing entries at December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)DateAccount Titles and . 31(To close revenue account)Dec. 31 (To close expense accounts)Dec. 31 (To close net income/ (loss))Dec. 31 (To close dividends)Click if you would like to Show Work for this question: Open Show Work

1.Close revenue accounts:

Dr Service revenue  $52, 000

Cr Income Summary  $52, 000

2.Close expense accounts:

Dr Income Summary$35, 000

Cr Salaries and Wages Expense  $27, 000

Cr Supplies Expense    $8, 000  

3.Close net income/ (loss):

Dr Income Summary$17, 000

Cr Retained Earnings  $17, 000

$52, 000 - $35, 000 = $17, 000

4.Close Dividends/ Drawings

Dr Retained Earnings$2, 000

Cr Dividends  $2, 000

Explanation:

The Importance of posting closing journal entries:

Before we go into the importance of posting closing journal entries, it is important that we understand what closing journal entries are. Closing journal entries are journal entries that are made at the end of the accounting period or financial year, which transfer the balances of temporary accounts to permanent accounts. Temporary accounts include income, expense, a=revenue and gains accounts. These closing journal entries are based on adjustments that are made to the trial balance at the end of the accounting period.

The importance of posting closing journal entries is because when we post closing journal entries, we are able to set new intentions for the next journal entry. These journal entries are necessary as we have to set temporary accounts to zero on the general journal.

There are 4 basic closing journal entries:  

(a)Close the revenue accounts

(b)Close the expense accounts

(c)Close the income summary account

(d)Close the dividends/ drawings accounts

The following are the closing journal entries that Rios Company has to post at the end of the accounting period:

1.Close revenue accounts:

Dr Service revenue  $52, 000

       Cr Income Summary  $52, 000

2.Close expense accounts:

Dr Income Summary$35, 000

Cr Salaries and Wages Expense  $27, 000

Cr Supplies Expense    $8, 000  

3.Close net income/ (loss):

Dr Income Summary$17, 000

Cr Retained Earnings  $17, 000

$52, 000 - $35, 000 = $17, 000

4.Close Dividends/ Drawings

Dr Retained Earnings$2, 000

Cr Dividends  $2, 000

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