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 Revenue; Credit Retained Earnings

Debit Income Summary; Credit Revenue

Debit Retained Earnings; Credit Revenue

Debit Revenue; Credit Income Summary

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Verified step by step guidance

Understand the purpose of closing entries: Closing entries are used to transfer the balances of temporary accounts (like revenue, expenses, and dividends) to permanent accounts (like retained earnings) at the end of the accounting period.

Identify the accounts involved: Revenue accounts need to be closed, and their balances are transferred to the Income Summary account. This is a temporary account used to summarize revenues and expenses before transferring the net income or loss to Retained Earnings.

Determine the correct entry: To close revenue accounts, you need to debit the Revenue account (to reduce its balance to zero) and credit the Income Summary account (to transfer the revenue balance).

Write the journal entry: The closing entry for revenue accounts is: Debit Revenue; Credit Income Summary. This ensures that the revenue account is cleared and its balance is moved to the Income Summary account.

Verify the process: After closing the revenue accounts, the Income Summary account will hold the net income or loss, which will later be closed to Retained Earnings in subsequent closing entries.