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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

What is the third entry of the closing procedure for a merchandising business?

  1. a. Sales to Income Summary
  2. b. Income Summary to Capital
  3. c. Expenses to Income Summary
  4. d. Drawing to Capital
  5. e. Capital to Income Summary

To determine

Find the correct option, the option that indicates the third step in closing procedure.

Explanation

Closing entries: The journal entries prepared to close the temporary accounts to capital account are referred to as closing entries. The revenue, expense, and drawing accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Steps in closing procedure:

  1. 1. Close the revenue accounts and the income statement accounts with credit balances to Income Summary account.
  2. 2. Close the expense accounts and the income statement accounts with debit balances to Income Summary account.
  3. 3. Close the Income Summary account and transfer the net income or net loss balance to the Capital account.
  4. 4. Close the Drawing account to Capital account...

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