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At the end of the calendar year, the procedure for a monthly closing should be followed and a financial statement prepared and distributed as usual. If the monthly closing routine is effectively handled and all regular month-end adjustments are booked, this financial statement will reflect the financial condition of the dealership at the end of the year and the results of operations for the year. It is very important to make sure the end-of-year statement is correct, because the Company no longer accepts a “13th month” statement.
After all adjustments have been recorded, close the books by preparing General Journal entries as follows and posting them to the General Ledger:
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1.
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Debit each Sales and Additions to Income account with the amount of the credit balance in the account. |
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2.
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Credit each Cost of Sales, Expense, and Deductions from Income account with the amount of the debit balance in the account. |
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3.
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Close Account 2850 to the appropriate investment accounts as follows: |
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a.
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Corporations
- Debit Account 2850 with the amount of the credit balance in the account and credit Account 2810, Retained Earnings.
- Credit Account 2820, Dividends Declared, with the amount of the debit balance in the account. The offsetting debit will be to Account 2810, Retained Earnings.
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b.
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Partnerships and Proprietorships
- Debit Account 2850 with the amount of the credit balance in the account and credit Account 2830, Partners’ or Proprietor’s Investment.
- Credit Account 2840, Partners’ or Proprietor’s Drawing, with the amount of the debit balance in the account. The offsetting debit will be to Account 2830.
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After the General Journal closing entries have been posted to the General Ledger accounts, the Asset, Liability and Net Worth accounts will be in balance.
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