Ans
– All nominal
accounts appearing in the trial balance must be closed at the end of the year
by transferring them either to ‘Trading Account’ or to the ‘Profit & Loss
Account’. The journal entries required for transferring these accounts to
trading or profit & loss account are called ‘Closing Entries’.
The closing entries are passed by
applying the following logic:
(i) If as particular account is
appearing on the debit side of the trial balance then that particular account
is credited and trading or profit & loss account is debited.
(ii) If a particular account is
appearing on the credit side of the trial balance then that particular account
is debited and trading or profit & loss account is credited.
Additional
Information: Value of
closing stock as on 31st
March, 2001 is Rs. 18,000.
In order to close nominal account
appearing in the above trial balance the following Closing Entries will be
passed:
(1) Trading Account Dr
To
Opening Stock 10,000
To
Purchases 1,25,000
To
Wages 12,000
To
Freight 1,000
(Being
transfer of debit balances to trading account)
(2) Sales account Dr. 1,80,000
Closing Stock Dr
To
Trading A/c 1,98,000
(Being Transfer of Credit balances to
trading A/c & the recording of value of closing stock)
(3) Trading Account Dr
To
Profit & Loss A/c 50,000
(Being transfer of gross profit to P
& L A/c)
(4) Profit & Loss A/c Dr
To
Rent 9,000
To
Salary 15,000
To
Repairs & Maintenance 2,000
To
Printing & Stationery 3,000
To
Advertisement 1,000
(Being transfer of debit balance to P
& L A/c)
(5) Discount on Purchases Dr
Commission Account 5,000
To
P & L A/c 7,000
(Being transfer of credit balances to
P & L A/c)
(6) Profit & Loss A/c Dr
To
Capital A/c 27,000
(Being transfer of net profit to
capital a/c)
