Multiple Choice
Which of the following represents the correct order in which most master budgets are prepared?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following accounts will be credited in order to close it at the end of the accounting period?
A
Service Revenue
B
Dividends
C
Income Summary
D
Salaries Expense
Verified step by step guidance1
Understand the concept of closing entries: At the end of the accounting period, temporary accounts (revenues, expenses, and dividends) are closed to transfer their balances to permanent accounts, such as Retained Earnings.
Identify the accounts that need to be closed: Temporary accounts include Service Revenue, Dividends, and Salaries Expense. These accounts are closed to Income Summary or Retained Earnings, depending on the step in the closing process.
Determine the normal balance of each account: Service Revenue has a credit balance, while Dividends and Salaries Expense have debit balances. Closing entries involve reversing these balances to zero.
Focus on the account being credited: To close Service Revenue, you would debit Service Revenue and credit Income Summary. This reverses the credit balance of Service Revenue to zero.
Apply the same logic to other accounts: Dividends and Salaries Expense would be closed by crediting them (since they have debit balances) and debiting Income Summary or Retained Earnings. This ensures all temporary accounts are zeroed out at the end of the period.
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