Question

Demetria Davis, the bookkeeper for Home Interiors and Designs Company, has just finished posting the closing entries for the year to the ledger. She is concerned about the following balances:

Capital account balance in the general ledger:	$	97,100
Ending capital balance on the statement of owner’s equity:		55,600

Davis knows that these amounts should agree and asks for your assistance in reviewing her work.

Your review of the general ledger of Home Interiors and Designs Company reveals a beginning capital balance of $50,000. You also review the general journal for the accounting period and find the closing entries shown below.

GENERAL JOURNAL				Page 15
Date		Description	Debit	Credit
2019		Closing Entries
Dec.	31	Fees Income	98,000
		Accumulated Depreciation	8,500
		Account Payable	33,000
		Income Summary		139,500
	31	Income Summary	92,400
		Salaries Expense		78,000
		Supplies Expense		5,000
		Depreciation Expense		2,400
		Thomas Richey, Drawing		7,000

Required:

2. Prepare a general journal entry to correct the errors made.
3. Reconcile the balance of capital account in the ledger after closing entries have been posted and the ending capital balance of owner's equity.

Answer 1

Solution a:

Correcting Journal Entry
Event	Particulars	Debit	Credit
1	Income Summary Dr	$41,500
	To Accumulated Depreciation		$8,500
	To Accounts payable		$33,000
	(Accumulated depreciation and Accounts payable are not closed, therefore it is to be corrected)

Solution b:

Reconciliation of Balance
Capital Account balance in the General ledger	$97,100
Less: Correction of closing entries ($8500+$33000)	$41,500
Ending Capital balance on the Statement of Owner's Equity	$55,600