Multiple Choice
In the process of preparing financial statements and closing entries, which financial statement is typically prepared last?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following accounts will be debited in the closing entry at the end of the year?
A
Accumulated Depreciation
B
Retained Earnings
C
Service Revenue
D
Cash
Verified step by step guidance1
Understand the concept of closing entries: Closing entries are used to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to permanent accounts (such as Retained Earnings) at the end of the accounting period.
Identify the nature of the accounts listed: Service Revenue is a temporary account, while Accumulated Depreciation and Cash are permanent accounts. Retained Earnings is also a permanent account.
Determine the treatment of Service Revenue: Since Service Revenue is a temporary account, its balance needs to be closed to Retained Earnings. To close a revenue account, you debit the revenue account and credit Retained Earnings.
Understand why Accumulated Depreciation and Cash are not debited: Accumulated Depreciation is a contra-asset account and is not closed during the closing process. Cash is an asset account and remains open as part of the balance sheet.
Conclude that the correct account to be debited in the closing entry is Service Revenue, as it is a temporary account that needs to be closed to Retained Earnings.
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