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 closing entry to close revenue accounts at the end of the accounting period?

Debit Income Summary and credit each revenue account.

Credit each revenue account and debit Income Summary.

Debit each revenue account and credit Retained Earnings.

Debit each revenue account and credit 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 balances from temporary accounts (like revenue and expense accounts) to permanent accounts (such as Retained Earnings). This process resets the temporary accounts to zero for the next period.

Identify the accounts involved: Revenue accounts are temporary accounts that need to be closed. The Income Summary account is used as an intermediary to collect the balances of revenue and expense accounts before transferring the net result to Retained Earnings.

Determine the correct closing entry for revenue accounts: To close revenue accounts, you need to reduce their balances to zero. Since revenue accounts normally have credit balances, you will debit each revenue account to offset its balance.

Understand the role of the Income Summary account: The Income Summary account is credited in this step to collect the total revenue amount. This account will later be used to calculate the net income or loss for the period.

Write the journal entry: The closing entry to close revenue accounts is 'Debit each revenue account and credit Income Summary.' This ensures that revenue accounts are reset to zero and their balances are transferred to the Income Summary account.