Multiple Choice
Which of the following journal entries correctly closes the revenue accounts at the end of the accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following is the correct journal entry to close the Income Summary account with a net income at the end of the accounting period?
A
Debit Income Summary; Credit Dividends
B
Debit Revenue; Credit Income Summary
C
Debit Income Summary; Credit Retained Earnings
D
Debit Retained Earnings; Credit Income Summary
Verified step by step guidance1
Understand the purpose of closing the Income Summary account: At the end of the accounting period, the Income Summary account is closed to transfer the net income or net loss to the Retained Earnings account, which reflects the accumulated earnings of the company.
Identify the correct accounts involved: Since the company has a net income, the Income Summary account will have a credit balance. To close this account, you need to debit Income Summary and credit Retained Earnings.
Recall the journal entry format: A journal entry consists of a debit entry and a corresponding credit entry. In this case, the debit entry will be made to the Income Summary account, and the credit entry will be made to the Retained Earnings account.
Write the journal entry: The journal entry to close the Income Summary account with a net income is: Debit Income Summary; Credit Retained Earnings. This reflects the transfer of net income to the Retained Earnings account.
Verify the logic: Ensure that the journal entry aligns with the accounting principle of closing temporary accounts (like Income Summary) to permanent accounts (like Retained Earnings) at the end of the accounting period.
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