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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Identify each of the following categories of accounts as temporary or permanent: assets, liabilities, equity, revenues, expenses, dividends. How is the distinction between temporary and permanent accounts related to the closing process?

To determine

Concept Introduction:

Closing Entries: Closing entries is the process of closing temporary accounts at the end of year. Closing entries are prepared after preparing the adjusted trial balance. In the process of closing entries following steps are follows in the form of journal entries:

  1. Closing all revenue accounts by debiting the revenue accounts and crediting Income Summary Account.
  2. Closing all expenses by debiting the Income Summary accounts and crediting all expenses accounts.
  3. Closing the net income by debiting the Income Summary accounts and crediting Capital or Retained earrings account.
  4. Closing the withdrawals accounts by debiting the Capital or Retained earrings account and crediting the withdrawal account.

To Identify:

The type of account as temporary or permanent for the given accounts.

Explanation

Closing entries is the process of closing temporary accounts at the end of year. Closing entries are prepared after preparing the adjusted trial balance. In the process of closing entries following steps are follows in the form of journal entries:

  1. Closing all revenue accounts by debiting the revenue accounts and crediting Income Summary Account.
  2. Closing all expenses by debiting the Income Summary accounts and crediting all expenses accounts.
  3. Closing the net income by debiting the Income Summary accounts and crediting Capital or Retained earrings account.
  4. Closing the withdrawals accounts by debiting the Capital or Retained earrings account and crediting the withdrawal account...

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