Which of these accounts would be closed by posting a debit to it group of answer choices unearned revenue fees earned dividends miscellaneous expense?

Q: What accounts get closed and why?

At the end of a companys fiscal year, all temporary accounts should be closed. Temporary accounts accumulate balances for a single fiscal year and are then emptied. Conversely, permanent accounts accumulate balances on an ongoing basis through many fiscal years, and so are not closed at the end of the fiscal year.

What Is a Closing Entry?

A closing entry is a journal entry made at the end of accounting periods that involves shiftingdata from temporary accounts on the income statement to permanent accounts on the balance sheet. Temporary accounts include revenue, expenses, and dividends, and these accounts must be closed at the end of the accounting year.

Inhaltsverzeichnis Show

What Is a Closing Entry?
Key Takeaways:
Understanding Closing Entries
Income Summary Account
Recording a Closing Entry
Special Considerations
What accounts are closed by posting a debit to the account?
Which of the following accounts is closed?
Which account is used to close out all of the expense accounts will you debit or credit expenses?
What accounts get closed and why?

Key Takeaways:

A closing entry is a journal entry made at the end of the accounting period.
It involves shiftingdata from temporary accounts on the income statement to permanent accounts on the balance sheet.
All income statement balances are eventually transferred to retained earnings.

How to Make a Closing Entry

Understanding Closing Entries

The purpose of the closing entry is to reset the temporary account balances to zero on the general ledger, the record-keeping system for a company's financial data.

Temporary accounts are used to record accounting activity during a specific period. All revenue and expense accounts must end with a zero balance because they are reported in defined periods and are not carried over into the future. For example, $100 in revenue this year does not count as $100 of revenue for next year, even if the company retained the funds for use in the next 12 months.

Permanent accounts, on the other hand, track activities that extend beyond the current accounting period. They are housed on the balance sheet, a section of the financial statements that gives investors an indication of a company’s value, including its assetsand liabilities.

Any account listed on the balance sheet, barring paid dividends, is a permanent account. On the balance sheet, $75 of cash held today is still valued at $75 next year, even if it is not spent.

As part of the closing entry process, the net income (NI) is moved into retained earnings on the balance sheet. The assumption is that all income from the company in one year is held onto for future use. Any funds that are not held onto incur an expense that reduces NI. One such expense that is determined at the end of the year is dividends. The last closing entry reduces the amount retained by the amount paid out to investors.

Income Summary Account

Temporary account balances can either be shifted directly to the retained earnings account or to an intermediate account known as the income summary account beforehand.

Income summary is a holding account used to aggregate all income accounts except for dividend expenses. Income summary is not reported on any financial statements because it is only used during the closing process, and at the end of the closing process the account balance is zero.

Income summary effectively collects NI for the period and distributes the amount to be retained into retained earnings. Balances from temporary accounts are shifted to the income summary account first to leave an audit trail for accountants to follow.

Recording a Closing Entry

There is an established sequence of journal entries that encompass the entire closing procedure:

First, all revenue accounts are transferred to income summary. This is done through a journal entry debiting all revenue accounts and crediting income summary.
Next, the same process is performed for expenses. All expenses are closed out by crediting the expense accounts and debiting income summary.
Third, the income summary account is closed and credited to retained earnings.
Finally, if a dividend was paid out, the balance is transferred from the dividends account to retained earnings.

Important

Modern accounting software automatically generates closing entries.

Special Considerations

If a company’s revenues are greater than its expenses, the closing entry entails debiting income summary and crediting retained earnings. In the event of a loss for the period, the income summary account needs to be credited and retained earnings reduced through a debit.

Finally, dividends are closed directly to retained earnings. The retained earnings account is reduced by the amount paid out in dividends through a debit, and the dividends expense is credited.

EA 1.

LO 3.1Match the correct term with its definition.

A. cost principle	i. if uncertainty in a potential financial estimate, a company should err on the side of caution and report the most conservative amount
B. full disclosure principle	ii. also known as the historical cost principle, states that everything the company owns or controls (assets) must be recorded at their value at the date of acquisition
C. separate entity concept	iii. (also referred to as the matching principle) matches expenses with associated revenues in the period in which the revenues were generated
D. monetary measurement concept	iv. business must report any business activities that could affect what is reported on the financial statements
E. conservatism	v. system of using a monetary unit by which to value the transaction, such as the US dollar
F. revenue recognition principle	vi. period of time in which you performed the service or gave the customer the product is the period in which revenue is recognized
G. expense recognition principle	vii. business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally

EA 2.

LO 3.2Consider the following accounts, and determine if the account is an asset (A), a liability (L), or equity (E).

Accounts Payable
Cash
Dividends
Notes Payable

EA 3.

LO 3.2Provide the missing amounts of the accounting equation for each of the following companies.

EA 4.

LO 3.2Identify the financial statement on which each of the following accounts would appear: the income statement (IS), the retained earnings statement (RE), or the Balance Sheet (BS).

Insurance Expense
Accounts Receivable
Office Supplies
Sales Revenue
Common Stock
Notes Payable

EA 5.

LO 3.2Cromwell Corporation has the following trial balance account balances, given in no certain order, as of December 31, 2018. Retained Earnings at January 1, 2018, was $3,600. Using the information provided, prepare Cromwell’s annual financial statements (omit the Statement of Cash Flows).

EA 6.

LO 3.3From the following list, identify which items are considered original sources:

prepaid insurance
bank statement
sales ticket
general journal
trial balance
balance sheet
telephone bill
invoice from supplier
company sales account
income statement

EA 7.

LO 3.4Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity.

	Impact 1	Impact 2
Received cash from issuance of common stock
Sold goods to customers on account
Collected cash from customer sales made in previous month
Paid cash to vendors for supplies delivered last month
Purchased inventory on account

Table 3.3

EA 8.

LO 3.1For the following accounts please indicate whether the normal balance is a debit or a credit.

Sales
Dividends
Office Supplies
Retained Earnings
Accounts Receivable
Prepaid Rent
Prepaid Insurance
Wages Payable
Building
Wages Expense

EA 9.

LO 3.4Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity.

	Impact 1	Impact 2
Paid monthly note payment to bank
Sold inventory on account
Bought supplies, to be paid for next month
Received cash from sales this month
Paid for inventory purchased on account last month

Table 3.4

EA 10.

LO 3.1Identify the normal balance for each of the following accounts. Choose Dr for Debit; Cr for Credit.

	Normal balance
Utilities Expense
Cash
Equipment
Rent Revenue
Preferred Stock
Interest Payable

Table 3.5

EA 11.

LO 3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.

	Debit or credit?
Cash increase
Supplies decrease
Accounts Payable increase
Common Stock decrease
Interest Payable decrease
Notes Payable decrease

Table 3.6

EA 12.

LO 3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.

	Debit or credit?
Equipment decrease
Common Stock Sold increase
Gas and Oil Expense increase
Service revenue decrease
Miscellaneous Expense decrease
Bonds Payable decrease

Table 3.7

EA 13.

LO 3.4Identify whether ongoing transactions posted to the following accounts would normally have only debit entries (Dr), only credit entries (Cr), or both debit and credit entries (both).

	Type of entry
Accounts Payable
Cash
Gas and Oil Expense
Rent Revenue
Supplies Expense
Common Stock

Table 3.8

EA 14.

LO 3.5Determine whether the balance in each of the following accounts increases with a debit or a credit.

Cash
Common Stock
Equipment
Accounts Payable
Fees Earned
Electricity Expense

EA 15.

LO 3.5Journalize for Harper and Co. each of the following transactions or state no entry required and explain why. Be sure to follow proper journal writing rules.

A corporation is started with an investment of $50,000 in exchange for stock.
Equipment worth $4,800 is ordered.
Office supplies worth $750 are purchased on account.
A part-time worker is hired. The employee will work 15–20 hours per week starting next Monday at a rate of $18 per hour.
The equipment is received along with the invoice. Payment is due in three equal monthly installments, with the first payment due in sixty days.

EA 16.

LO 3.5Discuss how each of the following transactions for Watson, International, will affect assets, liabilities, and stockholders’ equity, and prove the company’s accounts will still be in balance.

An investor invests an additional $25,000 into a company receiving stock in exchange.
Services are performed for customers for a total of $4,500. Sixty percent was paid in cash, and the remaining customers asked to be billed.
An electric bill was received for $35. Payment is due in thirty days.
Part-time workers earned $750 and were paid.
The electric bill in “C” is paid.

EA 17.

LO 3.5For each item that follows, indicate whether a debit or a credit applies.

increase in prepaid insurance
increase in utilities expense
increase in commissions earned
increase in supplies
decrease in retained earnings
decrease in income taxes payable
increase in unearned revenue
increase in salaries expense
decrease in notes receivable
increase in common stock

EA 18.

LO 3.5Indicate whether each account that follows has a normal debit or credit balance.

Unearned Revenue
Office Machines
Prepaid Rent
Cash
Legal Fees Earned
Salaries Payable
Dividends
Accounts Receivable
Advertising Expense
Retained Earnings

EA 19.

LO 3.5A business has the following transactions:

The business is started by receiving cash from an investor in exchange for common stock $20,000
The business purchases supplies on account $500
The business purchases furniture on account $2,000
The business renders services to various clients on account totaling $9,000
The business pays salaries $2,000
The business pays this month’s rent $3,000
The business pays for the supplies purchased on account.
The business collects from one of its clients for services rendered earlier in the month $1,500.

What is total income for the month?

EA 20.

LO 3.5Prepare journal entries to record the following transactions.

January 22, purchased, an asset, merchandise inventory on account for $2,800.
February 10, paid creditor for part of January 22 purchase, $1,600

EA 21.

LO 3.5Prepare journal entries to record the following transactions.

July 1, issued common stock for cash, $15,000
July 15, purchased supplies, on account, $1,800
July 25, billed customer for accounting services provided, $950

EA 22.

LO 3.5Prepare journal entries to record the following transactions.

March 1, purchased land for cash, $20,000
March 11, purchased merchandise inventory, on account, $18,500
March 15, Sold merchandise to customer for cash, $555

EA 23.

LO 3.5Post the following February transactions to T-accounts for Accounts Receivable and Cash, indicating the ending balance (assume no beginning balances in these accounts).

provided legal services to customers for cash, $5,600
provided legal services to customers on account, $4,700
collected cash from customer accounts, $3,500

EA 24.

LO 3.5Post the following November transactions to T-accounts for Accounts Payable and Inventory, indicating the ending balance (assume no beginning balances in these accounts).

purchased merchandise inventory on account, $22,000
paid vendors for part of inventory purchased earlier in month, $14,000
purchased merchandise inventory for cash, $6,500

EA 25.

LO 3.6Prepare an unadjusted trial balance, in correct format, from the alphabetized account information as follows. Assume all accounts have normal balances.

What accounts are closed by posting a debit to the account?

Accounts that are Debited in the Closing Entries Revenue accounts. Gain accounts. Contra expense accounts.

Which of the following accounts is closed?

Nominal accounts are accounts that are closed at the end of the accounting period. These accounts are typically the income and expense accounts that are presented in the income statement.

Which account is used to close out all of the expense accounts will you debit or credit expenses?

All expenses are closed out by crediting the expense accounts and debiting income summary.

What accounts get closed and why?

At the end of a company's fiscal year, all temporary accounts should be closed. Temporary accounts accumulate balances for a single fiscal year and are then emptied. Conversely, permanent accounts accumulate balances on an ongoing basis through many fiscal years, and so are not closed at the end of the fiscal year.