Closing Journal Entries

Closing Journal Entries
Revenue and expense accounts are temporary accounts and closed at the end of each period.
The balances of revenue and expense accounts are transferred to the income summary account.
The balance of income summary account represents net income.
The balance of income summary account is then transferred to the retained earnings account.
Assets, liabilities and equity accounts are permanent accounts that are not closed at the end of each period.
Closing entries are the journal entries that are prepared to transfer the balances of revenue and expense accounts to the income summary account, and transfer the balance of income summary account to retained earnings.

 

Example of Closing Journal Entries


Review Questions
1. Which accounts are temporary accounts?
Revenue and expense accounts are temporary accounts.
2. Which accounts are permanent accounts?
Asset, liability and equity accounts are permanent accounts.
3. Which accounts are closed at the end of each period?
Temporary accounts are closed at the end of each period?
4. When the revenue and expense accounts are closed, to which account are those balances are transferred?
The balances of revenue and expense accounts are transferred to the income summary account.
5. What does the balance of the income summary account represent?
The balance of the income summary account represents net income for the period.
6. To which account is the balance of the income summary account transferred?
The balance of the income summary account is transferred to the retained earnings account.
7. Is retained earnings account a permanent account?
Retained earnings is an equity account, which is a permanent account.

Exercise


 

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