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 the Dividends account at the end of the accounting period?

Debit Dividends; Credit Income Summary

Debit Retained Earnings; Credit Dividends

Debit Income Summary; Credit Dividends

Debit Dividends; 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 Dividends, Revenues, and Expenses) to permanent accounts (like Retained Earnings). This ensures that temporary accounts start with a zero balance in the next period.

Identify the nature of the Dividends account: Dividends represent distributions to shareholders and reduce Retained Earnings. It is a temporary account that needs to be closed to Retained Earnings at the end of the period.

Determine the correct accounts to use: To close the Dividends account, you need to debit Retained Earnings (to reduce it) and credit Dividends (to zero out its balance). This reflects the reduction in Retained Earnings due to dividends paid.

Write the journal entry: The journal entry to close the Dividends account is: Debit Retained Earnings; Credit Dividends. This entry transfers the balance of the Dividends account to Retained Earnings.

Verify the impact of the entry: After posting this journal entry, the Dividends account will have a zero balance, and the reduction in Retained Earnings will be accurately recorded in the financial statements.