Which of the following journal entries is used to record the closing of credit balances in temporary accounts at the end of an accounting period?

• A. Debit each revenue account and credit Income Summary.
• B. Debit Retained Earnings and credit Dividends.
• C. Debit Income Summary and credit each expense account.
• D. Debit each expense account and credit Cash.

Answer: (A)

Verified step by step guidance

1. Understand the concept of closing entries: Closing entries are used to transfer the balances of temporary accounts (revenue, expense, and dividends) to permanent accounts (Retained Earnings or Income Summary) at the end of an accounting period.
2. Identify the purpose of closing credit balances in temporary accounts: Credit balances typically exist in revenue accounts, and these need to be closed to the Income Summary account to prepare for the next accounting period.
3. Analyze the correct journal entry: To close credit balances in revenue accounts, you need to debit each revenue account (to reduce its balance to zero) and credit the Income Summary account (to transfer the revenue balance).
4. Review the incorrect options: For example, 'Debit Retained Earnings and credit Dividends' is used to close dividends, not revenue accounts. Similarly, 'Debit Income Summary and credit each expense account' is used to close expense accounts, and 'Debit each expense account and credit Cash' is not a valid closing entry.
5. Conclude the correct journal entry: The correct entry for closing credit balances in temporary accounts (revenue accounts) is 'Debit each revenue account and credit Income Summary.' This ensures the revenue balances are transferred to the Income Summary account.