Question

Closing entries for a company that sells inventory items is the same as a company that sells services.

Answer 1

The statement that Closing entries for a company that sells inventory items is the same as a company that sells services is not true. Altough most of the closing entries are similar in both companies like transferring of sales/receipts to Income Summary by crediting the Income Summary Account, transferring the operating expenses to Income Summary by debiting the Income Summary Account. But the major difference is that the comapny which sells inventory items also records Cost of Goods Sold as under:

Cost of Goods Sold = Begining Inventory + Net Purchases - Ending ?Inventory

Inventory Selling comapany debits Income Summary Account by Cost of Sales and consequently reduces its profit whereas Service Provider Company does not pass such type of Closing Entry.