Running Head: Reversing Entries

CheckPoint: Reversing Entries
XACC280 Week 5
Writer’s Name

Course Name, Semester No, Class Level

Supervisor Name

February 10, 2010

ANSWER KEY
BE4-12
At October 31, Nathan Company made an accrued expense adjusting entry of $1,400 for salaries. Prepare the reversing entry on November 1, and indicate the balances in Salaries Payable and Salaries Expense after posting the reversing entry.

Nov. 1 Salaries Payable .......................................................... 1,400 Salaries Expense ................................................. 1,400

The balances after posting the reversing entry are Salaries Expense (Cr.)
$1,400 and Salaries Payable $0.

What do you consider might happen if: 1. Revenue accounts are not closed? Explain why.

At the end of the accounting period, closing entries are made to prepare the accounts for the next accounting period. During this step, Temporary Accounts (All Income Statement Accounts as well as the Dividend Account) are closed.
Therefore if the Revenue account is not closed, the company’s net income will be overstated for the next accounting period which would give an incorrect picture of the company’s operations in the period under examination.

2. Expense accounts are not closed? Explain why.

The same logic applies as in number 1 above; only in this case expenses for the next accounting period would be overstated and net income would be understated. Another point to note here is that since the income statement reports the success or profitability of the company’s operations over a specific period of time, not closing revenues and expense accounts would result in the Income Statement not serving its purpose.

3. Dividends are not closed? Explain why.

Dividends are not an expense account therefore they not closed to