Questions and Answers
What are the 4 steps in the closing process?
- Close expense accounts, 2) Close revenue accounts, 3) Close income summary account and update retained earnings, 4) Close dividend account.
How to close expense accounts?
Credit expenses for the total amount of expenses and debit income summary.
How to close a revenue account?
Debit revenue for the total amount of revenues and credit income summary.
How to close income summary?
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How to close dividends account?
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Study Notes
Closing Process Steps
- Four essential steps are involved in the closing process:
- Close expense accounts
- Close revenue accounts
- Close income summary account and update retained earnings
- Close the dividend account
Closing Expense Accounts
- To close expense accounts, credited for their total amount because they normally hold a debit balance.
- The income summary account is debited to maintain balance between debits and credits.
Closing Revenue Accounts
- Revenue accounts are closed by debiting them for the total amount of revenues earned.
- This action requires a corresponding credit to the income summary to ensure debits and credits are equal.
Closing Income Summary
- If the net income is positive, the income summary will display a credit balance.
- The income summary is then debited for the net income amount, while retained earnings are credited by the same amount to reflect the increase.
Closing Dividends Account
- Dividend accounts are credited as they hold a debit balance to zero them out.
- Debiting retained earnings reflects the distribution of dividends from the company’s earnings.
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Description
Test your knowledge of the closing accounts process with these flashcards. Learn the four key steps and understand how to close expense accounts effectively. This quiz will help reinforce your understanding of essential accounting practices.
