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

Debit Income Summary; Credit Revenue accounts

Debit Retained Earnings; Credit Revenue accounts

Debit Revenue accounts; Credit Income Summary

Debit Revenue accounts; Credit Retained Earnings

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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 (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.