Multiple Choice
Which of the following accounts is NOT closed to the Income Summary account during the closing entries process?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following correctly summarizes the steps in the closing process?
A
Close asset accounts, close liability accounts, close equity accounts, close revenue accounts.
B
Close retained earnings, close dividends, close revenue accounts, close expense accounts.
C
Close expense accounts, close asset accounts, close revenue accounts, close dividends.
D
Close revenue accounts, close expense accounts, close income summary to retained earnings, close dividends to retained earnings.
Verified step by step guidance1
Understand the purpose of the closing process: The closing process is performed at the end of an accounting period to transfer balances from temporary accounts (revenue, expenses, and dividends) to permanent accounts (retained earnings). This ensures that temporary accounts start with a zero balance in the next period.
Step 1: Close revenue accounts. Transfer the balances of all revenue accounts to the Income Summary account. This is done by debiting each revenue account and crediting the Income Summary account.
Step 2: Close expense accounts. Transfer the balances of all expense accounts to the Income Summary account. This is done by crediting each expense account and debiting the Income Summary account.
Step 3: Close the Income Summary account to Retained Earnings. Calculate the net income or net loss (the balance in the Income Summary account) and transfer it to the Retained Earnings account. If there is net income, debit the Income Summary account and credit Retained Earnings. If there is a net loss, credit the Income Summary account and debit Retained Earnings.
Step 4: Close dividends to Retained Earnings. Transfer the balance of the Dividends account to Retained Earnings by debiting Retained Earnings and crediting the Dividends account.
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