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 financial statement elements is closed at the end of an accounting cycle?

Assets

Liabilities

Owner's equity (capital)

Revenue accounts

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Verified step by step guidance

Understand the concept of closing entries: Closing entries are made at the end of an accounting cycle to transfer balances from temporary accounts (such as revenues, expenses, and dividends) to permanent accounts (such as retained earnings or owner's equity). This process resets the temporary accounts to zero for the next accounting period.

Identify the types of accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. Permanent accounts include assets, liabilities, and owner's equity (capital). Temporary accounts are closed, while permanent accounts are not.

Focus on revenue accounts: Revenue accounts are temporary accounts that record income earned during a specific period. At the end of the accounting cycle, their balances are transferred to a permanent account, typically retained earnings or owner's equity, to reflect the net income earned.

Explain why assets, liabilities, and owner's equity (capital) are not closed: These are permanent accounts that carry their balances forward to the next accounting period. They are not reset to zero because they represent ongoing financial positions of the business.

Conclude that revenue accounts are closed: Revenue accounts are closed at the end of the accounting cycle to ensure accurate tracking of income for the next period. This is part of the closing process in the accounting cycle.