Multiple Choice
Which of the following is the correct journal entry to close all expense accounts at the end of the accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following accounts is NOT closed to Income Summary when preparing closing entries as of August 31 under the perpetual inventory system?
A
Cost of Goods Sold
B
Inventory
C
Rent Expense
D
Sales Revenue
Verified step by step guidance1
Understand the concept of closing entries: Closing entries are used to transfer the balances of temporary accounts (e.g., revenues, expenses, and dividends) to permanent accounts (e.g., retained earnings). This process resets the temporary accounts to zero for the next accounting period.
Identify the accounts listed in the problem: The accounts mentioned are Cost of Goods Sold, Inventory, Rent Expense, and Sales Revenue. Determine which of these are temporary accounts and which are permanent accounts.
Recognize that under the perpetual inventory system, the Inventory account is a permanent account. Permanent accounts are not closed to the Income Summary because their balances carry forward to the next accounting period.
Note that Cost of Goods Sold, Rent Expense, and Sales Revenue are temporary accounts. These accounts are closed to the Income Summary to prepare for the next accounting period.
Conclude that the Inventory account is NOT closed to the Income Summary, as it is a permanent account under the perpetual inventory system.
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