Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Closing Entries

Financial Accounting

3. Accrual Accounting Concepts

Closing Entries

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Multiple Choice

Which of the following is the correct journal entry to close all expense accounts at the end of the accounting period?

Debit Retained Earnings; Credit all Expense accounts

Debit all Expense accounts; Credit Retained Earnings

Debit Income Summary; Credit all Expense accounts

Debit all Expense accounts; Credit Income Summary

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Verified step by step guidance

Understand the purpose of closing entries: Closing entries are made at the end of an accounting period to transfer balances from temporary accounts (like revenue, expenses, and dividends) to permanent accounts (like Retained Earnings or Income Summary). This process resets the temporary accounts to zero for the next period.

Identify the accounts involved: Expense accounts are temporary accounts that need to be closed. The Income Summary account is used as an intermediary to collect the balances of all temporary accounts before transferring them to Retained Earnings.

Determine the correct journal entry: To close expense accounts, you need to debit the Income Summary account (to increase its balance) and credit all Expense accounts (to reduce their balances to zero). This reflects the transfer of expenses to the Income Summary account.

Write the journal entry: The journal entry to close expense accounts is: Debit Income Summary; Credit all Expense accounts. This ensures that the expense accounts are reset to zero and their balances are moved to the Income Summary account.

Understand the flow of closing entries: After closing the expense accounts, the Income Summary account will eventually be closed to Retained Earnings, completing the process of transferring all temporary account balances to the permanent equity account.