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 revenue accounts at the end of the accounting period?

Debit Income Summary; Credit Revenue accounts

Debit Revenue accounts; Credit Income Summary

Debit Revenue accounts; Credit Retained Earnings

Debit Retained Earnings; Credit Revenue accounts

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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 revenue and expense accounts) to permanent accounts (like retained earnings). This process resets the temporary accounts to zero for the next period.

Identify the accounts involved: Revenue accounts are temporary accounts that need to be closed. The Income Summary account is used as an intermediary step in the closing process, and Retained Earnings is the permanent account where the net income or loss is ultimately transferred.

Determine the correct journal entry: To close revenue accounts, you need to debit the revenue accounts to reduce their balances to zero and credit the Income Summary account to transfer the revenue balance to it.

Understand why the other options are incorrect: For example, 'Debit Income Summary; Credit Revenue accounts' is incorrect because it reverses the direction of the entry. Similarly, 'Debit Revenue accounts; Credit Retained Earnings' skips the intermediary step of using the Income Summary account.

Summarize the correct process: The correct journal entry to close revenue accounts is 'Debit Revenue accounts; Credit Income Summary,' as this properly transfers the revenue balance to the Income Summary account before it is ultimately closed to Retained Earnings.