Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Closing Entries

Financial Accounting

3. Accrual Accounting Concepts

Closing Entries

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Multiple Choice

Which of the following is the correct entry to close income statement accounts with debit balances at the end of the accounting period?

Debit the expense accounts and credit Income Summary.

Debit the revenue accounts and credit Income Summary.

Credit the expense accounts and debit Income Summary.

Credit the revenue accounts and debit Income Summary.

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Verified step by step guidance

Understand the purpose of closing entries: Closing entries are made at the end of an accounting period to transfer balances from temporary accounts (like revenue and expense accounts) to permanent accounts (like retained earnings or Income Summary). This resets the temporary accounts to zero for the next period.

Identify the accounts with debit balances: In the income statement, accounts with debit balances are typically expense accounts. These need to be closed by crediting them to reduce their balance to zero.

Determine the account to transfer balances to: The balances of the expense accounts are transferred to the Income Summary account, which acts as a temporary holding account before transferring the net income or loss to retained earnings.

Record the closing entry for expense accounts: To close expense accounts, you need to credit each expense account (to reduce its balance to zero) and debit the Income Summary account (to increase its balance by the total of the expenses).

Verify the entry: Ensure that the total debits equal the total credits in the closing entry. This maintains the balance in the accounting equation and prepares the accounts for the next period.