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

Select the statement below that explains how to use the Income Summary account during the closing process:

The Income Summary account is used to temporarily hold revenues and expenses before transferring the net income or loss to Retained Earnings.

The Income Summary account is used to track the balances of asset accounts at year-end.

The Income Summary account is used to record all cash transactions for the period.

The Income Summary account is used to directly close dividends to the capital account.

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Verified step by step guidance

Step 1: Understand the purpose of the Income Summary account. The Income Summary account is a temporary account used during the closing process to summarize revenues and expenses for the period.

Step 2: Recognize that the Income Summary account is not used to track asset balances, record cash transactions, or directly close dividends. These are unrelated to the function of the Income Summary account.

Step 3: Learn the sequence of the closing process. First, revenue accounts are closed to the Income Summary account, followed by expense accounts. This allows the net income or loss to be calculated within the Income Summary account.

Step 4: After calculating the net income or loss, the balance in the Income Summary account is transferred to the Retained Earnings account, reflecting the impact on the owner's equity.

Step 5: Note that dividends are closed separately to the Retained Earnings account and are not part of the Income Summary account's function.