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

At the end of the year, what is included in the closing entry to close a revenue account?

A debit to the revenue account and a credit to Income Summary

A debit to the revenue account and a credit to Retained Earnings

A credit to the revenue account and a debit to Retained Earnings

A credit to the revenue account and a debit to 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 the balances of temporary accounts (like revenues, expenses, and dividends) to permanent accounts (like Retained Earnings). This resets the temporary accounts to zero for the next period.

Identify the nature of the revenue account: Revenue accounts have a normal credit balance. To close a revenue account, you need to bring its balance to zero by debiting it for the same amount as its current credit balance.

Determine where the revenue account balance is transferred: The balance of the revenue account is transferred to the Income Summary account, which is a temporary account used to summarize revenues and expenses before transferring the net income or loss to Retained Earnings.

Record the closing entry for the revenue account: Debit the revenue account to reduce its balance to zero, and credit the Income Summary account for the same amount to reflect the transfer of revenue.

Verify the entry: Ensure that the debit to the revenue account equals the credit to the Income Summary account, maintaining the accounting equation's balance.