Multiple Choice
To which of the following accounts should the balance in the Income Summary account be closed at the end of the accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following items is NOT entered on the closing statement as a credit to the buyer?
A
Unpaid property taxes due from the previous year
B
Earnest money deposit
C
Purchase price of the property
D
Prepaid property taxes by the seller
Verified step by step guidance1
Understand the concept of a closing statement: A closing statement is a financial summary prepared during the closing of a real estate transaction. It details credits and debits for both the buyer and the seller.
Identify what constitutes a credit to the buyer: Credits to the buyer typically include amounts that reduce the buyer's financial obligation, such as earnest money deposits, prepaid expenses by the seller, or adjustments for property taxes.
Analyze each option provided: Determine whether each item listed is typically credited to the buyer. For example, unpaid property taxes from the previous year are usually a debit to the buyer, as the buyer assumes responsibility for these taxes.
Clarify the role of prepaid property taxes by the seller: If the seller has prepaid property taxes, this amount is credited to the buyer because the buyer benefits from the seller's prepayment.
Conclude which item is NOT a credit to the buyer: Based on the analysis, unpaid property taxes due from the previous year are not credited to the buyer, as they represent an obligation the buyer must pay.
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