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 journal entries is used to record the closing of credit balances in temporary accounts at the end of an accounting period?

Debit each revenue account and credit Income Summary.

Debit Retained Earnings and credit Dividends.

Debit Income Summary and credit each expense account.

Debit each expense account and credit Cash.

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Verified step by step guidance

Understand the concept of closing entries: Closing entries are used to transfer the balances of temporary accounts (revenue, expense, and dividends) to permanent accounts (Retained Earnings or Income Summary) at the end of an accounting period.

Identify the purpose of closing credit balances in temporary accounts: Credit balances typically exist in revenue accounts, and these need to be closed to the Income Summary account to prepare for the next accounting period.

Analyze the correct journal entry: To close credit balances in revenue accounts, you need to debit each revenue account (to reduce its balance to zero) and credit the Income Summary account (to transfer the revenue balance).

Review the incorrect options: For example, 'Debit Retained Earnings and credit Dividends' is used to close dividends, not revenue accounts. Similarly, 'Debit Income Summary and credit each expense account' is used to close expense accounts, and 'Debit each expense account and credit Cash' is not a valid closing entry.

Conclude the correct journal entry: The correct entry for closing credit balances in temporary accounts (revenue accounts) is 'Debit each revenue account and credit Income Summary.' This ensures the revenue balances are transferred to the Income Summary account.