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 the Income Summary account with a net income at the end of the accounting period?

Debit Income Summary; Credit Dividends

Debit Revenue; Credit Income Summary

Debit Income Summary; Credit Retained Earnings

Debit Retained Earnings; Credit Income Summary

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Verified step by step guidance

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.