Multiple Choice
Which of the following statements regarding closing out overapplied or underapplied overhead is correct?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
The closing process includes which of the following?
A
Preparing the post-closing trial balance before closing entries
B
Recording adjusting entries for accrued expenses
C
Posting transactions to the general ledger
D
Transferring the balances of temporary accounts to retained earnings
Verified step by step guidance1
Understand the purpose of the closing process: The closing process is performed at the end of an accounting period to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to permanent accounts (like retained earnings). This ensures that temporary accounts start with a zero balance in the next accounting period.
Identify temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. These accounts are closed to retained earnings because they are used to track activity for a specific period and do not carry over to the next period.
Prepare closing entries: Closing entries are journal entries made to transfer the balances of temporary accounts to retained earnings. For example, revenue accounts are debited, and retained earnings are credited; expense accounts are credited, and retained earnings are debited.
Post closing entries to the general ledger: After preparing the closing entries, they are posted to the general ledger to update the balances of the accounts. This step ensures that the financial records reflect the closing process.
Prepare the post-closing trial balance: After closing entries are posted, a post-closing trial balance is prepared to ensure that all temporary accounts have been closed and only permanent accounts remain. This trial balance confirms the accuracy of the closing process.
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