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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

Which of these is the first step in the closing process?

(a) Close revenue account(s).

(b) Close expense accounts.

(c) Close the Income Summary account.

(d) Close the drawing account.

To determine

Identify the first step in the closing process.

Explanation

Justification for the incorrect answer:

Option (b) is incorrect because close the expense account is a second step in the closing process.

Option (c) is incorrect because close the income summary account is a third step in the closing process.

Option (d) is incorrect because close the drawing account is a fourth step in the closing process.

Justification for the correct answer:

Option (a)

Closing the books of accounts is called as “closing process”. This consists of journalizing and posting the closing entries in order to get the balance of each account to next period. Closing process brings the account balances of all the revenues, expenses, and owner’s drawings to zero value so that the net income or net loss of a particular period could be measured.

The following are the four steps in the closing process:

Step 1: Close the revenue accounts to income summary account.

DateAccounts and ExplanationDebit ($)Credit ($)
Revenue (SE–)XXX 
     Income summary (SE+) XXX
 (To close the revenue account)  

Step 2: Close the expense accounts to income summary account.

DateAccounts and ExplanationDebit ($)Credit ($)
Income summary (SE–)XXX 
      Depreciation expense (SE+) XXX

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