Accounts: Their Construction and Interpretation for Business Men and Students of Affairs

By William Morse Cole | Go to book overview

Similarly, Merchandise, with a summary inventory, may be closed with the net profit carried to Loss and Gain and the inventory left as a balance for the new year, thus:

Dec. 31 11 Merchandise 30,000
25 To Loss and Gain 30,000
To close, as follows:
Stock, dry goods 10,000
millinery 3,000
shoes 7,000 20,000
Credit balance, per ledger 10,000

The posting of this item gives the account a debit balance for the new year of $20,000 as on page 46.

It would be possible, of course, to split these entries and enter only the inventories or the accrued items in this way, crediting or debiting them by simple journal entries. Then the balance of net profit or loss could be transferred to Loss and Gain by the other method, as described in Chapter V.

Accounts having no inventory or accrued items attached may be closed into Loss and Gain by a simple debit or credit on the journal to transfer the balance.

In the case of Real Estate and Plant, if, as may happen, the bookkeeper wishes to keep an account to represent depreciation year by year, so that the amount can be found at a glance without picking it out from the various items of the real estate and plant account, two journal entries may be used. The first records the depreciation.

Depreciation 1626.00
To Real Estate and Plant 1626.00

The second transfers the depreciation to Loss and Gain. When that has been done, Depreciation is closed, Real Estate and Plant shows the proper balance, and the loss is correctly reported; and the entries to Depreciation show in convenient form just what has been charged on that account each year. As many depreciation accounts may be distinguished as one may wish.

Finally, Loss and Gain is closed by journal entries which carry the balance to the proprietors or to dividends, or to surplus, or what not.

-312-

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