Multiple Choice
To which of the following accounts should the balance in the Income Summary account be closed at the end of the accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following accounts is NOT closed at the end of the accounting period?
A
Service Revenue
B
Retained Earnings
C
Dividends
D
Salaries Expense
Verified step by step guidance1
Understand the concept of closing entries: At the end of an accounting period, temporary accounts (such as revenues, expenses, and dividends) are closed to transfer their balances to permanent accounts (like Retained Earnings). This process resets the temporary accounts to zero for the next period.
Identify temporary accounts: Temporary accounts include revenue accounts (e.g., Service Revenue), expense accounts (e.g., Salaries Expense), and dividend accounts (e.g., Dividends). These accounts are closed to Retained Earnings during the closing process.
Identify permanent accounts: Permanent accounts, such as Retained Earnings, are not closed at the end of the accounting period. Their balances carry forward to the next period.
Analyze the options: Service Revenue, Dividends, and Salaries Expense are all temporary accounts and are closed at the end of the period. Retained Earnings, however, is a permanent account and is not closed.
Conclude: The account that is NOT closed at the end of the accounting period is Retained Earnings, as it is a permanent account.
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