Multiple Choice
Which of the following is the correct journal entry to close revenue accounts at the end of the accounting period?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following journal entries correctly closes income statement accounts with credit balances at the end of the accounting period?
A
Debit each expense account and credit Income Summary.
B
Credit each expense account and debit Income Summary.
C
Credit each revenue account and debit Income Summary.
D
Debit each revenue account and credit Income Summary.
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 revenue and expense accounts) to permanent accounts (like retained earnings). This process resets the temporary accounts to zero for the next period.
Identify the accounts involved: Revenue accounts typically have credit balances, and expense accounts typically have debit balances. To close these accounts, you need to offset their balances by making entries in the opposite direction.
Focus on revenue accounts with credit balances: To close revenue accounts, you need to debit each revenue account (to offset its credit balance) and credit the Income Summary account. This transfers the revenue balances to the Income Summary account.
Understand the role of the Income Summary account: The Income Summary account is a temporary account used to summarize revenues and expenses during the closing process. After closing revenue and expense accounts, the balance in the Income Summary account is transferred to Retained Earnings.
Apply the correct journal entry: The correct journal entry to close income statement accounts with credit balances (revenue accounts) is to debit each revenue account and credit the Income Summary account. This ensures the revenue accounts are reset to zero and their balances are summarized in the Income Summary account.
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