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Chapter 3: Question 4Q (page 127)

Why are revenue and expense accounts called temporary or nominal accounts?

Short Answer

Expert verified

Revenue and expense accounts are temporary or nominal accounts; revenue and expense account also begin every accounting year with no balance. When the year ends, the balance on the temporary account is shifted to another account. Moreover, both the accounts are income statement accounts.

Step by step solution

01

Meaning of accounts

An account is a systematic record of transactions prepared by a company for the purpose ofmaintaining business records in its books of accounts. It helps to make business data available in depth.

02

Reason for calling revenue and expense temporary or nominal accounts

Revenue and expenses accounts are also called temporary or nominal accounts as at every accounting cycle; they are closed out to income summary in the closing process. Their balances become zero at the end of the financial period.

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Most popular questions from this chapter

LaBouche Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $2,400 received in advance. Prepare LaBouche鈥檚 November 1 journal entry and the December 31 annual adjusting entry.

When salaries and wages expense for the year is computed, why are beginning accrued salaries and wages subtracted from, and ending accrued salaries and wages added to, salaries and wages paid during the year?

Santo Design was founded by Thomas Grant in January 2011. Presented below is the adjusted trial balance as of December 31, 2017.

SANTO DESIGN

ADJUSTED TRIAL BALANCE

DECEMBER 31, 2017


Dr.

Cr.

Cash

\( 11,350

Accounts Receivable

21,500

Supplies

5,000

Prepaid Insurance

2,500

Equipment

60,000

Accumulated Depreciation鈥擡quipment

\) 35,000

Accounts Payable

5,000

Interest Payable

150

Notes Payable

5,000

Unearned Service Revenue

5,600

Salaries and Wages Payable

1,300

Common Stock

10,000

Retained Earnings

3,500

Service Revenue

61,500

Salaries and Wages Expense

11,300

Insurance Expense

850

Interest Expense

150

Depreciation Expense

7,000

Supplies Expense

3,400

Rent Expense

4,000

\(127,050

\)127,050

Instructions

a. Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.

b. Answer the following questions.

1.If the note has been outstanding for 6 months, what is the annual interest rate on that note?

2.If the company paid $17,500 in salaries in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

E3-15 (L06) (Missing Amounts) Presented below is financial information for two different companies.

Alatorre Company Eduardo Company
Sales revenue \(90,000 (d)
Sales returns and allowances (a) \)5,000
Net sales 81,000 95,000
Cost of goods sold 56,000 (e)
Gross profit (b) 38,000
Operating expenses 15,000 23,000
Net income (c) 15,000

Instructions

Compute the missing amounts.

Question: Presented below is the trial balance of the Crestwood Golf Club, Inc. as of December 31. The books are closed annually on December 31.


CRESTWOOD GOLF CLUB, INC.

TRIAL BALANCE

DECEMBER 31

Debit

Credit

Cash

\(15,000

Accounts receivables

13,000

Allowance for doubtful accounts

\)1,100

Prepaid insurance

9,000

Land

350,000

Building

120,000

Accumulated depreciation 鈥� building

38,400

Equipment

150,000

Accumulated depreciation 鈥� equipment

70,000

Common stock

400,000

Retained earnings

82,000

Dues revenue

200,000

Green fees revenue

5,900

Rent revenue

17,600

Utilities expenses

54,000

Salaries and wages expenses

80,000

Maintenance and repair expenses

24,000

\(815,000

\)815,000

Instructions

(a) Enter the balances in ledger accounts. Allow five lines for each account.

(b) From the trial balance and the information given below, prepare annual adjusting entries and post to the ledger accounts. (Omit explanations.)

(1) The buildings have an estimated life of 30 years with no salvage value (straight-line method).

(2) The equipment is depreciated at 10% per year.

(3) Insurance expired during the year \(3,500.

(4) The rent revenue represents the amount received for 11 months for dining facilities. The December rent has not yet been received.

(5) It is estimated that 12% of the accounts receivable will be uncollectible.

(6) Salaries and wages earned but not paid by December 31, \)3,600.

(7) Dues received in advance from members $8,900 were recorded as Dues Revenue.

(c) Prepare an adjusted trial balance.

(d) Prepare closing entries and post.
See all solutions

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