Multiple Choice
Which of the following is the correct journal entry to close the revenue account(s) at the end of the accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following best describes the journal entry to close expense accounts at the end of an accounting period?
A
Debiting Income Summary and crediting each expense account
B
Debiting each expense account and crediting Income Summary
C
Debiting Revenue accounts and crediting each expense account
D
Debiting each expense account and crediting Retained Earnings
Verified step by step guidance1
Understand the purpose of closing entries: Closing entries are made at the end of an accounting period to transfer balances from temporary accounts (like revenues and expenses) to permanent accounts (like Retained Earnings). This process resets the temporary accounts to zero for the next period.
Focus on expense accounts: Expense accounts are temporary accounts that need to be closed. To close an expense account, its balance must be reduced to zero. This is done by debiting the opposite account and crediting the expense account.
Identify the account to transfer expenses to: The Income Summary account is used as an intermediary during the closing process. Expenses are transferred to the Income Summary account before ultimately being closed to Retained Earnings.
Determine the correct journal entry: To close expense accounts, you debit each expense account (to reduce its balance to zero) and credit the Income Summary account (to transfer the expense balances).
Verify the correct answer: Based on the explanation, the correct journal entry to close expense accounts is 'Debiting each expense account and crediting Income Summary.' This aligns with the standard closing process in financial accounting.
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