Multiple Choice
Which of the following is the correct closing entry to transfer the balance of the Income Summary account (account number 901) to Retained Earnings on December 31?
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3. Accrual Accounting Concepts
Closing Entries
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following accounts is a temporary account?
A
Retained Earnings
B
Accounts Payable
C
Service Revenue
D
Equipment
Verified step by step guidance1
Understand the concept of temporary accounts: Temporary accounts are accounts that are closed at the end of an accounting period. Their balances are transferred to permanent accounts, such as Retained Earnings, to reset them for the next period. Examples include revenue, expense, and dividend accounts.
Analyze the given options: Retained Earnings, Accounts Payable, Service Revenue, and Equipment.
Identify permanent accounts: Permanent accounts are not closed at the end of the accounting period. Retained Earnings, Accounts Payable, and Equipment are examples of permanent accounts because their balances carry over to the next period.
Identify temporary accounts: Temporary accounts include revenue, expense, and dividend accounts. Service Revenue is a temporary account because it is closed at the end of the period to Retained Earnings.
Conclude that Service Revenue is the correct answer because it is a temporary account that is closed at the end of the accounting period.
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