Which of the following account balances would not be closed at year-end by debiting the account?

What is a Closing Entry?

Closing entries are journal entries that are made at the end of an accounting period.

These entries are created to prepare a business for the next accounting period.

Closing entries transfer certain balances from accounts that will not transfer to the next period to permanent accounts.

The closing entries reset the balances of these temporary accounts to zero.

The process also moves these account balances to permanent accounts that are listed on the company’s balance sheet.

Temporary Accounts

Temporary accounts, also known as nominal accounts, are accounts that businesses use to accumulate transactions during one accounting period.

The balances of the temporary accounts will end up being used to create the business’s income statement when the fiscal year ends.

A company’s income statement is one of the three main financial statements and provides analysts a picture of its performance over the course of a fiscal year.

This can be seen on the dateline, which states year ended xxxx.

Temporary accounts on the general ledger include accounts such as revenue and expense accounts.

The balances contained within these accounts will be deposited within the income summary account, which is itself a temporary account.

From the income summary account, the net balance of the temporary accounts will be transferred to retained earnings, a permanent account that is listed on the balance sheet.

The income summary account is a type of temporary account used as an intermediary for transferring the temporary account balances to the retained earnings account.

At the end of every period, temporary accounts must be set to a zero balance, and in order to do this, their balances will be deposited into the income summary account.

In turn, the net balance of all temporary accounts will be transferred from the income summary account to retained earnings which is a permanent account listed on the balance sheet.

Permanent Accounts

Permanent accounts are accounts that track activities extending over multiple accounting periods.

These accounts are listed on the balance sheet as one of the three main financial statements, which gives analysts a picture of a company’s financial standing at a particular moment in time.

This includes listing all of a company’s assets as well as its liabilities.

All accounts provided on the balance sheet, with the exception of dividends, is permanent.

For example, a cash account holding $100 will still be worth the same amount in the next accounting period.

During the process of performing closing entries, a company’s net income is transferred to retained earnings which will be listed on the balance sheet.

This is because income that a company retains in a given year will be held onto for use in future periods, and funds that a company spends will result in expenses that will reduce net income.

A specific example of this is dividends which is the final closing entry that will reduce retained earnings by any amount paid to investors.

Closing Entry Examples

Here are a few examples of performing closing entries in order to zero out the income statement temporary accounts.

This will be performed through crediting the expense accounts, debiting the income summary, and in turn, closing the income summary account and crediting the permanent retained earnings account.

Here is an example of these steps in practice:

Close the Revenue Account

The balance of the revenue account is cleared by applying a debit to the revenue account and an equivalent credit to the income summary account.

Close the Expense Accounts

The expense accounts are now cleared by issuing debits to the income summary account and crediting the expense accounts.

Close the Income Summary Account

It is now time to close the income summary account out by issuing debits in the amount of its remaining balance and credits of the same amount to the retained earnings account.

Close the Dividends Account

Finally the dividends account may be closed through a debit to the retained earnings account and credit to the dividends account.

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1. Middlesex Community College "CLOSING ENTRIES " Page 1 . February 2, 2022

2. Cerritos "Closing Entries and the Post Closing Trial Balance" Page 1 . February 2, 2022

3. Nashville Community College "Closing Entries" PowerPoint Presentation. February 2, 2022

Which of the following accounts would not be closed at the end of the accounting year?

Which accounts are closed with debits at year end?

What account balances would be closed at year end?