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 journal entries would be required to close a Salaries Expense account at the end of the accounting period?

Debit Income Summary; Credit Salaries Expense

Debit Retained Earnings; Credit Salaries Expense

Debit Salaries Expense; Credit Cash

Debit Salaries Expense; 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 revenues, expenses, and dividends) to permanent accounts (like Retained Earnings). This process resets the temporary accounts to zero for the next period.

Identify the account to be closed: In this case, the Salaries Expense account is a temporary account that needs to be closed. Expenses are closed by transferring their balances to the Income Summary account.

Determine the correct journal entry: To close the Salaries Expense account, you need to debit the Income Summary account (to increase it) and credit the Salaries Expense account (to decrease it to zero). This reflects the transfer of the expense balance to the Income Summary.

Understand why other options are incorrect: For example, 'Debit Retained Earnings; Credit Salaries Expense' is incorrect because Retained Earnings is not directly involved in closing expense accounts. Similarly, 'Debit Salaries Expense; Credit Cash' is incorrect because it represents a payment transaction, not a closing entry. 'Debit Salaries Expense; Credit Income Summary' reverses the correct entry and is also incorrect.

Write the correct journal entry: The correct journal entry to close the Salaries Expense account is: Debit Income Summary; Credit Salaries Expense. This ensures the Salaries Expense account is reset to zero and its balance is transferred to the Income Summary.