Multiple Choice
Which of the following is the correct journal entry to close the Dividends account at the end of the accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following is the correct journal entry to close revenue accounts at the end of the accounting period?
A
Debit Income Summary; Credit Revenue accounts
B
Debit Retained Earnings; Credit Revenue accounts
C
Debit Revenue accounts; Credit Income Summary
D
Debit Revenue accounts; Credit Retained Earnings
Verified step by step guidance1
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 (like retained earnings or income summary). This process resets the temporary accounts to zero for the next period.
Identify the correct accounts involved: Revenue accounts are temporary accounts that need to be closed. The Income Summary account is often used as an intermediary step in the closing process before transferring balances to Retained Earnings.
Determine the correct journal entry: To close revenue accounts, you need to debit the revenue accounts to reduce their balances to zero (since they normally have credit balances). The corresponding credit will be made to the Income Summary account.
Write the journal entry: The journal entry to close revenue accounts is: Debit Revenue accounts; Credit Income Summary. This reflects the transfer of revenue balances to the Income Summary account.
Verify the logic: Ensure that the revenue accounts are reduced to zero and the Income Summary account is updated with the total revenue amount. This step prepares the accounts for the next stage of closing entries, where the Income Summary balance is transferred to Retained Earnings.
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