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Question
What are closing entries? Give four examples of closing entries.
Solution
The balances of all nominal accounts are transferred to the Trading and Profit and Loss Account.
The entries required for such transfers are termed as closing entries.
The examples of closing entries are given below.
1. Closing entries to transfer the following items to the debit side of trading account from Trial Balance:
Trading A/c Dr.
To Opening Stock A/c
To Purchase A/c
To Wages A/c
To Carriage A/c
To All Other Direct Expenses A/c
(Transferred debit balances to Trading Account)
2. Closing entries to transfer the following items to the credit side of trading account from Trial Balance:
Sales A/c Dr.
Closing Stock A/c Dr.
To Trading A/c
(Transferred credit balances to Trading Account)
3. Closing entries to transfer the following items to the debit side of Profit and Loss Account from Trial Balance:
Profit and Loss A/c Dr.
To Salaries
To Rent
To Bad Debts
To All in Direct Expenses
(Transferred debit balances to Profit and Loss Account)
4. Closing entries to transfer the following items to the credit side of Profit and Loss Account from Trial Balance:
Commission Received A/c Dr.
Interest Received A/c Dr.
All Other Indirect Income A/c Dr.
To Profit and Loss A/c
(Transferred credit balances to Profit and Loss Account)
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RELATED QUESTIONS
What is the purpose of preparing trading and profit and loss account?
Explain the concept of cost of goods sold?
From the following balances taken from the books of Simmi and Vimmi Ltd. for the year ending March 31, 2017, calculate the gross profit.
|
|
(₹) |
|
Closing stock |
2,50,000 |
|
Net sales during the year |
40,00,000 |
|
Net purchases during the year |
15,00,000 |
|
Opening stock |
15,00,000 |
|
Direct expenses |
80,000 |
₹
From the following balances extracted from the books of M/s Ahuja and Nanda. Calculate the amount of:
(a) Cost of goods available for sale
(b) Cost of goods sold during the year
(c) Gross Profit
|
|
₹ |
|
Opening stock |
25,000 |
|
Credit purchases |
7,50,000 |
|
Cash purchases |
3,00,000 |
|
Credit sales |
12,00,000 |
|
Cash sales |
4,00,000 |
|
Wages |
1,00,000 |
|
Salaries |
1,40,000 |
|
Closing stock |
30,000 |
|
Sales return |
50,000 |
|
Purchases return |
10,000 |
Operating profit earned by M/s Arora and Sachdeva in 2016-17 was ₹ 17,00,000. Its non-operating incomes were ₹ 1,50,000 and non-operating expenses were ₹ 3,75,000. Calculate the amount of net profit earned by the firm.
The following are the extracts from the trial balance of M/s Bhola and Sons as on March 31, 2017
| Account title | Debit ₹ |
Credit ₹ |
| Opening Stock | 2,00,000 | |
| Purchases | 8,10,000 | |
| Sales | 10,10,000 | |
| 10,10,000 | 10,10,000 |
(Only relevant items)
Closing Stock as on date was valued at ₹ 3,00,000.
You are required to record the necessary journal entries and show how the above items will appear in the trading and profit and loss account and balance sheet of M/s Bhola and Sons.
Prepare trading and profit and loss account and balance sheet as on March 31, 2017:
| Account Title | Amount ₹ |
Account Title | Amount ₹ |
| Machinery | 27,000 | Capital | 60,000 |
| Sundry debtors | 21,600 | Bills payable | 2,800 |
| Drawings | 2,700 | Sundry creditors | 1,400 |
| Purchases | 58,500 | Sales | 73,500 |
| Wages | 15,000 | ||
| Sundry expenses | 600 | ||
| Rent and taxes | 1,350 | ||
| Carriage inwards | 450 | ||
| Bank | 4,500 | ||
| Openings stock | 6,000 |
Closing stock, as on March 31, 2017 ₹ 22,400.
The following is the trial balance of Manju Chawla on March 31, 2017. You are required to prepare trading and profit and loss account and a balance sheet as on date:
| Account title | Debit Amount ₹ |
Credit Amount ₹ |
| Opening stock | 10,000 | |
| Purchases and sales | 40,000 | 80,000 |
| Returns | 200 | 600 |
| Productive wages | 6,000 | |
| Dock and Clearing charges | 4,000 | |
| Donation and charity | 600 | |
| Delivery van expenses | 6,000 | |
| Lighting | 500 | |
| Sales tax collected | 1,000 | |
| Bad debts | 600 | |
| Misc. incomes | 6,000 | |
| Rent from tenants | 2,000 | |
| Royalty | 4,000 | |
| Capital | 40,000 | |
| Drawings | 2,000 | |
| Debtors and Creditors | 6,000 | 7,000 |
| Cash | 3,000 | |
| Investment | 6,000 | |
| Patents | 4,000 | |
| Land and Machinery | 43,000 |
Closing stock ₹ 2,000
The following is the trial balance of Mr. Deepak as on March 31, 2017. You are required to prepare trading account, profit and loss account and a balance sheet as on date:
| Account title | Debit Amount ₹ |
Account title | Credit Amount ₹ |
| Drawings | 36,000 | Capital | 2,50,000 |
| Insurance | 3,000 | Bills payable | 3,600 |
| General expenses | 29,000 | Creditors | 50,000 |
| Rent and taxes | 14,400 | Discount received | 10,400 |
| Lighting (factory) | 2,800 | Purchases return | 8,000 |
| Travelling expenses | 7,400 | Sales | 4,40,000 |
| Cash in hand | 12,600 | ||
| Bills receivable | 5,000 | ||
| Sundry debtors | 1,04,000 | ||
| Furniture | 16,000 | ||
| Plant and Machinery | 1,80,000 | ||
| Opening stock | 40,000 | ||
| Purchases | 1,60,000 | ||
| Sales return | 6,000 | ||
| Carriage inwards | 7,200 | ||
| Carriage outwards | 1,600 | ||
| Wages | 84,000 | ||
| Salaries | 53,000 |
Closing stock ₹ 35,000.
From the following trial balance of Mr. A. Lal, prepare trading, profit and loss account and balance sheet as on March 31, 2017.
| Account Title | Debit Amount ₹ |
Credit Amount ₹ |
| Stock as on April 01, 2016 | 16,000 | |
| Purchases and Sales | 67,600 | 1,12,000 |
| Returns inwards and outwards | 4,600 | 3,200 |
| Carriage inwards | 1,400 | |
| General expenses | 2,400 | |
| Bad debts | 600 | |
| Discount received | 1,400 | |
| Bank overdraft | 10,000 | |
| Interest on bank overdraft | 600 | |
| Commission received | 1,800 | |
| Insurance and taxes | 4,000 | |
| Scooter expenses | 200 | |
| Salaries | 8,800 | |
| Cash in hand | 4,000 | |
| Scooter | 8,000 | |
| Furniture | 5,200 | |
| Building | 65,000 | |
| Debtors and Creditors | 6,000 | 16,000 |
| Capital | 50,000 |
Closing stock ₹ 15,000.
Prepare trading and profit and loss account from the following particulars of M/s Neema Traders as on March 31, 2017.
| Account Title | Debit Amount ₹ |
Account Title | Credit Amount ₹ |
| Buildings | 23,000 | Sales | 1,80,000 |
| Plant | 16,930 | Loan | 8,000 |
| Carriage inwards | 1,000 | Bills payable | 2,520 |
| Wages | 3,300 | Bank overdraft | 4,720 |
| Purchases | 1,64,000 | Creditors | 8,000 |
| Sales return | 1,820 | Capital | 2,36,000 |
| Opening stock | 9,000 | Purchases return | 1,910 |
| Machinery | 2,10,940 | ||
| Insurance | 1,610 | ||
| Interest | 1,100 | ||
| Bad debts | 250 | ||
| Postage | 300 | ||
| Discount | 1,000 | ||
| Salaries | 3,000 | ||
| Debtors | 3,900 |
Stock on March 31, 2017 ₹ 16,000.
Prepare trading and profit and loss account of M/s Sports Equipments for the year ended March 31, 2017 and balance sheet as on that date:
| Account Title | Debit Amount ₹ |
Credit Amount ₹ |
| Opening stock | 50,000 | |
| Purchases and sales | 3,50,000 | 4,21,000 |
| Sales returns | 5,000 | |
| Capital | 3,00,000 | |
| Commission | 4,000 | |
| Creditors | 1,00,000 | |
| Bank overdraft | 28,000 | |
| Cash in hand | 32,000 | |
| Furniture | 1,28,000 | |
| Debtors | 1,40,000 | |
| Plants | 60,000 | |
| Carriage on purchases | 12,000 | |
| Wages | 8,000 | |
| Rent | 15,000 | |
| Bad debts | 7,000 | |
| Drawings | 24,000 | |
| Stationery | 6,000 | |
| Travelling expenses | 2,000 | |
| Insurance | 7,000 | |
| Discount | 5,000 | |
| Office expenses | 2,000 |
Closing stock as on March 31, 2017 ₹ 2,500
Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2017.
| ₹ | |
| Opening stock | 50,000 |
| Net sales | 11,00,000 |
| Net purchases | 6,00,000 |
| Direct expenses | 60,000 |
| Administration expenses | 45,000 |
| Selling and distribution Expenses | 65,000 |
| Loss due to fire | 20,000 |
| Closing stock | 70,000 |
Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2017.
| ₹ | |
| Opening stock | 50,000 |
| Net sales | 11,00,000 |
| Net purchases | 6,00,000 |
| Direct expenses | 60,000 |
| Administration expenses | 45,000 |
| Selling and distribution expenses | 65,000 |
| Loss due to fire | 20,000 |
| Closing stock | 70,000 |
Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2017.
| ₹ | |
| Opening stock | 50,000 |
| Net sales | 11,00,000 |
| Net purchases | 6,00,000 |
| Direct expenses | 60,000 |
| Administration expenses | 45,000 |
| Selling and distribution expenses | 65,000 |
| Loss due to fire | 20,000 |
| Closing stock | 70,000 |
Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2017.
| ₹ | |
| Opening stock | 50,000 |
| Net sales | 11,00,000 |
| Net purchases | 6,00,000 |
| Direct expenses | 60,000 |
| Administration expenses | 45,000 |
| Selling and distribution expenses | 65,000 |
| Loss due to fire | 20,000 |
| Closing stock | 70,000 |
