Question

1. Which of the following statements about the closing process is correct?

A Closing entries are recorded at the end of each reporting period which could be monthly, quarterly

or annually.

B After closing entries are posted, the balances of the income statement accounts will be zero.

C Closing entries are made to zero out the balances of the permanent accounts on the balance sheet.

D After closing entries are posted, the only temporary account with a balance is the Dividends account.

2. Which account below is a temporary account?

A Note Payable

B Deferred Revenue

C Accounts Receivable

D Depreciation Expense

3. Assuming that revenues exceed expenses, which of the following correctly

indicates the structure of the journal entry that is used to close revenue and

expense accounts?

A Debit Retained Earnings, credit Expenses, and credit Revenues

B Debit Revenues, credit Expenses, and credit Retained Earnings

C Debit Revenues, debit Expenses, and credit Retained Earnings

D Debit Expenses, credit Revenues, and credit Retained Earnings

Answer 1

Solution 1:

"After closing entries are posted, the balances of the income statement accounts will be zero" this statement is correct about the closing process. As during closing process, all temporary accounts of income statement are closed to retained earnings account.

Hence option "B" is correct.

Solution 2:

"Depreciation expense" is a temporary account. As temporary accounts are those accounts which do not appear on Balance sheet rather it is closed during closing process. Hence depreciation expense is temporary account.

Hence, option "D" is correct.

Solution 3:

When revenues exceed expenses, correct journal entry that is used to close revenue and expense accounts is as under:

Debit revenues

Credit expenses

Credit Retained earnings

Hence option "B" is correct.