Which of the following statements regarding closing journal entries is correct?

a. Closing entries transfer net income (or loss) to the Retained Earnings account.

b. The balance of the Dividends Declared account is transferred to the Retained Earnings account when closing entries are recorded

c. All income statement accounts and the Dividends Declared account are reset to zero in the closing entry process

d. All of the above are correct statements

Question

Business

Clayton Harmon

25 August, 07:33

Which of the following statements regarding closing journal entries is correct?

a. Closing entries transfer net income (or loss) to the Retained Earnings account.

b. The balance of the Dividends Declared account is transferred to the Retained Earnings account when closing entries are recorded

c. All income statement accounts and the Dividends Declared account are reset to zero in the closing entry process

d. All of the above are correct statements

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Answers (1)

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Copeland · Answer 1

The correct answer is letter "D": All of the above are correct statements.

Explanation:

A closing entry is a journal entry at the end of an accounting period. It closes a temporary account and transfers this information to a permanent Balance Sheet or an Income Statement Account. Temporary accounts include revenues, expenses, and dividends and must be brought to zero at the end of the accounting year. The following process should be followed to close entries:

Close revenue accounts to income summary by debiting revenue and crediting income summary. Close expense accounts to income summary by debiting income summary and crediting expense. Close income summary to retained earnings by debiting income summary and crediting retained earnings. Finally, close dividends to retained earnings by debiting retained earnings and crediting dividends.