QUESTION #1 During The Closing Process: A. The closing process consists of steps to transfer temporary account balances to permanent accounts and make the general ledger ready for the next accounting period. After all revenue and expense accounts are closed, the income summary account's balance equals the company's net income or loss for the period. 4 Second, the expense accounts are closed to the income summary account. In other words, the income summary account is simply a placeholder for account balances at the end of the accounting period while closing entries are being made. December 31? Expense..................................................... Depreciation........................................................... Supplies The company never depreciated the building although it had a useful life of 15 years. The four main types of financial statements are Statement of Financial Position, Income Statement, Cash Flow Statement and Statement of Changes in Equity. © 2003-2020 Chegg Inc. All rights reserved. The accountant credits an account … We can now move that balance over to Retained Earnings. Which accounts are debited in the closing entries? D. Increase net income. At year-end, the balance in the Inventory control account is $1,200,000. Gamma Company adjusts its accounts at the end of each month. Definition of Income Summary Account. The post-closing trial balance is a tool to demonstrate that accounts are in balance; it is not a formal financial statement. The company should make an adjusting entry: A.Debiting Wage Expense for $4,480 and crediting Wages Payable for $4,480. First, the revenue accounts are closed to the income summary account. The Income Summary account has no entries and no balance except during the process of closing the accounts at the end of accounting period. 1. The bank statement, however, shows a balance of $16,253 at the same date. Closing entry 1: The lawn cutting revenue account is Mr. Green's only income statement account with a credit balance. The intended result is for each temporary account to begin the next accounting year with a zero balance. During the current period 500 books were sold for $20,000, and this amount was credited to Unearned Rental Revenue. The lease requires monthly rent of $550, with 4 months paid in advance. All income statement accounts are credited to income summary. All … Why is this needed? All revenue accounts are debited and expense accounts are credited. D. All revenue accounts are debited and expense accounts … The four main types of financial statements are Statement of Financial Position, Income Statement, Cash Flow Statement and Statement of Changes in Equity. 5 Net income for the period equals: A.Merchandising transactions are recorded as they occur. Closing the Owner's Drawing Account All revenue accounts are closed together in a single entry, while all expense accounts are closed in the second entry. B. C. All revenue accounts are credited and expense accounts are debited. D.All revenue accounts are debited and expense accounts are credited. Which of the following factors would suggest the use of a perpetual inventory system? What Does Accounting Closing Process Mean? Which of the following statements about the closing process is correct? (5) All fees totaling $19,800 were earned during the month. Each earns $800 per week for a five day work week ending on Friday. d The income summary account doesn't factor … Which of the following items on a bank reconciliation may not have been known to the depositor until the bank statement had arrived? You are required to transfer closing balances of all the revenues and expenses to income summary A/c to close those accounts. The bookkeeper prepared a check for $68 but accidentally recorded it as $86. It contains all the company's revenues and expenses for the current accounting time period. An error was made. B.Inventory items with a high per-unit cost. The post closing trial balance reveals the balance of accounts after the closing process, and consists of balance sheet accounts only. Debit this account for an amount equal to the account's balance, and credit income summary for the same amount. 38. Retained. All income statement accounts are debited to income summary. All of these entries have emptied the revenue, expense, and income summary accounts, and shifted the net profit for the period to the retained earnings account. Download free blank excel template of business financial statements. | The following information has been assembled in order to prepare the required adjusting entries at December 31:(1) A one-year bank loan of $720,000 at an annual interest rate of 6% had been obtained on December 1. In other words, it contains net income or the earnings figure that remains after subtracting all business expenses, depreciation, debt service expense, and taxes. A bank reconciliation explains the differences between: C.The balance per bank statement and the cash balance per the accounting records of the depositor. In making adjusting entries, you might need to debit a revenue account, or credit an expense account, even though you would rarely if ever see this pattern in recording ordinary transactions. Expense.................................................... 1 The closing of the owner's drawing account by transferring its balance to the owner's capital account. C) It is a listing of all permanent accounts and their balances immediately after the adjusting process. During the closing process, the closing entries to individual expense accounts will be recorded with a _____ journal entry to reduce the account balance to zero. The first step is to locate your revenue and expenses and to move those balances into an account called the “Income Summary” account. C.Inventory is valued at relatively current costs. All income statement accounts are credited to income summary. After closing revenue and expenses with Income summary account, next step is to close income summary account, because it is also nominal account and must close at the end of each account period. In a perpetual inventory system, two entries usually are made to record each sales transaction. During the closing process: A. summary. The steps above describe a basic account closing process for a company, however this process is usually performed with software. Employees earn a total of $12,800 per week. 2 All of the revenue, expense, and dividend accounts were zeroed away via closing, and do not appear in the post-closing trial balance. The first is to close all of the temporary accounts in order to start with zero balances for the next year. Norma Company records the payment by debiting Prepaid Rent $2,200 and crediting Cash $2,200. The batch job processes all general ledger accounts of the type Income Statement and creates entries that … EX: Revenue, expense, gain, and loss accounts are used to accumulate data for the current accounting period only When preparing the bank reconciliation, this should be corrected by: After preparing a bank reconciliation, a journal entry would be required for which of the following: C.Interest earned on the company's checking account. The closing of the income statement accounts (revenues, expenses, gains, losses) by transferring their balances to the owner's capital account or the corporation's retained earnings account. The necessary adjusting entry at March 31 includes which of the following? The accountant determines the balance in … Which of the following would not tend to make a manufacturer choose a perpetual inventory system? The balance in the Office Equipment account is $12,360; no change has occurred in the account during the year. At this point, the income summary account will equal the profit or loss for the period. It contains all the company's revenues and expenses for the current accounting time period. Adjusting entries are necessary because a single transaction may affect revenues or expenses in more than one accounting period and also because all transactions have not necessarily been documented during the period. When preparing a bank reconciliation, outstanding checks will: D.Decrease the balance per the bank statement. The post-closing trial balance is a tool to demonstrate that accounts are in balance; it is not a formal financial statement. C.Both consists of all goods owned and held for sale to customers and is a non-financial asset. entries at Revenue accounts maintain normal credit balances. During the closing process: A. Hicksville's Department Store uses a perpetual inventory system. c or annually. These accounts are then ready for recording revenues and expenses in the new accounting period. B) It is a financial statement that describes all revenues and expense accounts after closing. Earnings................................................... Dividends............................................................... Service Close all dividend or withdrawal accounts. D. All revenue accounts are debited and expense accounts are Then, the income summary account is closed … Closing entries occur at the end of an accounting year to transfer the balances in the temporary accounts to a permanent or real account. These new entries are placed in a journal in which you must specify a balancing account and retained earnings account in the balance … C. All revenue accounts are credited and expense accounts are debited. or annually. At the end of 2015, this action will cause: On June 1, Norma Company signed a 12-month lease for warehouse space. D. All revenue accounts are debited and expense accounts … Now that all the temporary accounts are closed, the income summary account should have a … When prices are increasing, which inventory method will produce the highest cost of goods sold? Another useful review is to compare actuals to budget using the statement of activities (the income statement). D. All revenue accounts are debited and expense accounts … The entry to close the Fees Earned account will: A.Produce a zero balance in that account when posted. All income statement accounts are debited to income summary. b. After closing revenue and expenses with Income summary account, next step is to close income summary account, because it is also nominal account and must close at the end of each account period. Now that all the end of the year adjustments are made and the adjusted trial balance matches the subsidiary accounts, financial statements can be prepared. Management review The final stage occurs when all the documentation required to produce the financial statements, along with the statements themselves, are given to the senior management for review. Closing the Owner's Drawing Account The Income Summary account is a temporary account used with closing entries in a manual accounting system. The income summary account doesn't factor … D. All revenue accounts are debited and expense accounts … C) It is a listing of all permanent accounts and their balances immediately after the adjusting process. C. All revenue accounts are credited and expense accounts are debited. This month, the last day of the month falls on a Thursday. The only reconciling items consist of a bank service charge of $16, a large number of outstanding checks totaling $6,740, and a deposit in transit. Processing of closing entries occurs after the end of the company's accounting period. After a fiscal year has been closed and all prior-year entries have been posted, the income statement accounts must be closed and the net income for the year must be transferred to an account under owners' equity on the balance sheet. The Income Summary is very temporary since it has a zero First, all revenue and expense accounts are closed to an account called income summary. The process of closing out your temporary accounts starts by reviewing the income statement. All income statement accounts are credited to income summary. Note: Closing entries are always dated the first day of the next year. Definition: The accounting closing process, also called closing the books, is the steps required to prepare accounts for financial statement preparation and the start of the next accounting period. That is, each entry is the sum of all the general ledger entries on the account in the fiscal year. If income summary account has credit balance means it is profit and if income summary account reflects debit balance suggested lose by business operation. The final step in the year-end adjustment process is the preparation of closing entries that bring the income statement accounts to zero. During the closing process: The following T-accounts reveal the effects of the closing entries: Post-Closing Trial Balance. B After closing entries are posted, the balances of the income statement accounts will be zero. The preparation of the bank reconciliation should indicate that Golden's adjusted cash balance at June 30 is: A bank statement shows a balance of $8,445 at June 30. The temporary accounts, i.e. entries made at the end of an accounting period to zero out all temporary accounts and transfer their balances to permanent accounts Closing the expense accounts—transferring the debit balances in the expense accounts to a … The Income Summary account exists only during the closing process for the purpose of zeroing the revenue and expense accounts. Closing a year directs e-automate to make the necessary general ledger entries to close out the year balances for all income statement accounts to the general ledger account you designate during the year closing process, typically a retained earnings account. 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