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

To which of the following accounts should the balance in the Income Summary account be closed at the end of the accounting period?

Dividends

Common Stock

Cash

Retained Earnings

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Verified step by step guidance

Understand the purpose of the Income Summary account: It is a temporary account used during the closing process to summarize revenues and expenses for the period.

Recognize that the Income Summary account is closed at the end of the accounting period to transfer the net income or net loss to the Retained Earnings account, which is a permanent equity account.

Note that Dividends, Common Stock, and Cash are not accounts where the Income Summary balance is closed. Dividends are distributed from Retained Earnings, Common Stock is part of contributed capital, and Cash is an asset account.

Identify that Retained Earnings represents the accumulated profits or losses of the company after dividends are distributed, making it the correct account to close the Income Summary balance into.

Conclude that the closing process involves debiting or crediting the Income Summary account and making the corresponding entry in the Retained Earnings account to reflect the net income or net loss for the period.