Closing Entries

At the end of the accounting period (usually, December 31), we must reset our income statement accounts for the new accounting period.

Concept: Introduction to Closing Entries: Temporary and Permanent Accounts

3m

Concept: Closing Journal Entries

9m

Some professors like to ignore the Income Summary account altogether. Instead, all the closing entries just go straight to Retained Earnings. Double check with your class!

Closing Entries Additional Practice Problems

How would you close out Supplies Expense on 12/31/16 after the financial statements have been prepared?

a. Debit to Supplies Expense and a Credit to Retained Earnings

b. Debit to Retained Earnings and a Credit to Supplies Expense

c. Debit to Supplies Expense and a Credit to Net Income

d. Debit to Net Income and a Credit to Net Income

Watch Solution

Which of the following accounts would be classified as a nominal account and have a normal balance of a credit?

A. retained earnings

B. patent

C. salary expense

D. accumulated depreciation

E. service revenue

F. more than one of the above is correct

Watch Solution

Which of the following accounts would be closed at the end of an account period?

A. Accumulated depreciation, Interest income, Utilities Expense

B. Unearned revenues, Service revenues, depreciation expense

C. Depreciation expense, prepaid expenses, service revenues

D. Service revenues, depreciation expense, income tax expense

Watch Solution

All but which of the following are temporary accounts that are closed at the end of the year?

A. Unearned revenues

B. Interest income

C. Salaries expense

D. Service revenue

Watch Solution

Both the depreciation expense account and the accumulated depreciation account at the end of the first year of operations 

A. are closed.

B. have balances in an adjusted trial balance prepared after the adjusting entries but before the closing entries.

C. are not closed at the end of the accounting period.

D. have balances in a trial balance prepared prior to the adjusting and closing entries.

Watch Solution

The entry to close the expense accounts includes:

A. a debit to Retained Earnings and credits to the respective expense accounts.

B. a debit to Dividends and credits to the respective expense accounts.

C. debits to the respective expense accounts and a credit to Retained Earnings.

D. debits to the respective expense accounts and a credit to Dividends.

Watch Solution

The accounts listed below were taken from the trial balance of the Cola Company.

Accounts Payable                                               Fees earned
Accumulated Depreciation-Building                    Land
Capital Stock                                                       Retained Earnings
Depreciation Expense-Building                           Salaries Expense
Dividends                                                             Salaries Payable
Equipment                                                            Unearned Fees
Supplies Expense                                                 Supplies
Interest Receivable                                               Prepaid Insurance

Required: Identify the accounts that are temporary and would be closed at the end of the accounting period.

Watch Solution

The closing entry for dividends does not include a debit to income summary because

a) Dividends has a normal credit balance

b) Dividends are not a revenue or expense account and not part of net income

c) Dividends is a permanent account

d) Dividends are not part of the closing entries

Watch Solution

After closing entries are posted to the ledger, an expense account will have a

a) Debit balance

b) Credit balance

c) Negative balance

d) Zero balance

Watch Solution

One purpose of closing entries is to give zero balances to

a) asset and liability accounts

b) liability and owners’ equity accounts

c) revenue and expense accounts

d) expense and owners’ equity accounts

Watch Solution

The first two closing entries to the Income Summary account indicate a debit of $53,000 and a credit of $64,000. The third closing entry would be

a) debit Capital Stock $11,000; credit Income Summary $11,000

b) debit Income Summary $11,000; credit Retained Earnings $11,000

c) debit Revenue $64,000; credit Expenses $53,000; credit debit Income Summary $11,000

d) debit Revenue $64,000; credit Expenses $53,000; credit debit Retained Earnings $11,000

Watch Solution

The purpose of closing entries is to transfer:

A) Accounts receivable to retained earnings when an account is fully paid.

B) Balances in temporary accounts to a permanent account.

C) Inventory to cost of goods sold when merchandise is sold.

D) Assets and liabilities when operations are discontinued.

Watch Solution

After posting closing entries, which of the following accounts would most likely have a balance?

a) Wage Expense
b) Income Summary
c) Retained Earnings
d) Service Revenue

Watch Solution

Blurry Co. is in the process of completing its year-end financial statements. The closing proces yielded a net credit balance in the Income Summary account. Based on this information, it can be inferred that:

a) Blurry Co. incurred a loss
b) Blurry Co. earned a profit
c) Blurry Co. paid dividends during the year
d) More information is needed to make a conclusion

Watch Solution