Multiple Choice
Which of the following journal entries is used to record the closing of credit balances in temporary accounts at the end of an accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Place the steps in the four-step closing process in the correct order:
A
1. Close expenses to Income Summary2. Close revenues to Income Summary3. Close Dividends to Retained Earnings4. Close Income Summary to Retained Earnings
B
1. Close Income Summary to Retained Earnings2. Close revenues to Income Summary3. Close expenses to Income Summary4. Close Dividends to Retained Earnings
C
1. Close Dividends to Retained Earnings2. Close revenues to Income Summary3. Close expenses to Income Summary4. Close Income Summary to Retained Earnings
D
1. Close revenues to Income Summary2. Close expenses to Income Summary3. Close Income Summary to Retained Earnings4. Close Dividends to Retained Earnings
Verified step by step guidance1
Step 1: Begin the closing process by transferring all revenue account balances to the Income Summary account. This involves debiting each revenue account and crediting the Income Summary account. This step ensures that revenue accounts are reset to zero for the next accounting period.
Step 2: Transfer all expense account balances to the Income Summary account. This involves crediting each expense account and debiting the Income Summary account. Similar to revenues, this step resets expense accounts to zero for the next period.
Step 3: Close the Income Summary account to the Retained Earnings account. Calculate the net income or loss by determining the balance in the Income Summary account (revenues minus expenses). If there is net income, debit the Income Summary account and credit Retained Earnings. If there is a net loss, reverse the entries.
Step 4: Close the Dividends account to the Retained Earnings account. This involves debiting Retained Earnings and crediting the Dividends account to reflect the distribution of earnings to shareholders.
Step 5: Verify that all temporary accounts (revenues, expenses, Income Summary, and Dividends) have been closed and their balances are zero, ensuring the accounts are ready for the next accounting period.
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