Chapter 4 Practice Case: Closing the Books
Review & Prepare
This practice case helps you apply the Closing Entries and Post-Closing TB steps using a simplified RetailHub dataset.
Step 1: Review the Adjusted Trial Balance
| Account | Debit | Credit |
|---|---|---|
| Cash | $12,000 | |
| Accounts Receivable | $5,000 | |
| Inventory | $20,000 | |
| Equipment | $20,000 | |
| Accounts Payable | $3,000 | |
| Common Stock | $25,000 | |
| Retained Earnings | $2,000 | |
| Dividends | $1,000 | |
| Service Revenue | $15,000 | |
| Salaries Expense | $5,000 | |
| Rent Expense | $2,000 | |
| Totals | $44,000 | $44,000 |
Step 2: Prepare Closing Entries (REID Method)
Entry 1: Close Revenues
What is the total revenue to close?
Entry 2: Close Expenses
What is the total expenses to close?
Entry 3: Close Income Summary
What is the Net Income (Revenue - Expenses)?
Entry 4: Close Dividends
What is the Dividends amount to close?
Step 3: Post-Closing Trial Balance
Only permanent accounts (assets, liabilities, equity) should appear.
| Account | Debit | Credit |
|---|---|---|
| Cash | $12,000 | |
| Accounts Receivable | $5,000 | |
| Inventory | $20,000 | |
| Accounts Payable | $3,000 | |
| Common Stock | $25,000 | |
| Retained Earnings | $21,000 |
End of Case
Great job applying closing and post-closing procedures. Use the post-closing TB to begin the next period with clean permanent balances.