Multiple Choice
Which of the following is the correct journal entry to close 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 accounts is NOT closed to the Income Summary account during the closing entries process?
A
Rent Expense
B
Service Revenue
C
Dividends
D
Salaries Expense
Verified step by step guidance1
Understand the purpose of closing entries: Closing entries are used to transfer the balances of temporary accounts (revenues, expenses, and dividends) to permanent accounts (Retained Earnings). This process resets the temporary accounts to zero for the next accounting period.
Identify the accounts involved: Temporary accounts include revenue accounts (e.g., Service Revenue), expense accounts (e.g., Rent Expense and Salaries Expense), and dividends. These accounts are closed during the closing process.
Determine which accounts are closed to the Income Summary account: Revenue and expense accounts are closed to the Income Summary account. Dividends, however, are not closed to the Income Summary account; they are closed directly to Retained Earnings.
Analyze the question: The question asks which account is NOT closed to the Income Summary account. Since dividends are closed directly to Retained Earnings and not to the Income Summary account, dividends are the correct answer.
Conclude the reasoning: Dividends are excluded from the Income Summary closing process because they represent distributions to shareholders and are not part of the company's operational performance.
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