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 Retained Earnings; Credit Revenue accounts

Debit Revenue accounts; Credit Retained Earnings

Debit Revenue accounts; Credit Income Summary

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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 (such as Income Summary or Retained Earnings). This process resets the temporary accounts to zero for the next period.

Identify the accounts involved: In this case, the revenue accounts need to be closed. Revenue accounts typically have credit balances, so to close them, you need to debit the revenue accounts.

Determine where the revenue balances are transferred: Revenue balances are transferred to the Income Summary account during the closing process. This account acts as a temporary holding account before the final transfer to Retained Earnings.

Construct the journal entry: To close the revenue accounts, you debit the revenue accounts (to reduce their balances to zero) and credit the Income Summary account (to transfer the revenue balances).

Review the correct journal entry: The correct journal entry to close revenue accounts is 'Debit Revenue accounts; Credit Income Summary.' This ensures the revenue accounts are reset for the next accounting period and the balances are properly transferred.