Closing Entries (REID)

According to the REID sequence, what is the first closing entry?

• Debit income summary; credit each expense account.

• Debit each revenue account; credit income summary.

• Debit income summary for balance; credit capital.

• Debit capital; credit drawing.

Which step in the REID process closes the expense accounts?

• Debit each revenue account; credit income summary

• Debit income summary; credit each expense account

• Debit income summary for balance; credit capital

• Debit capital; credit drawing

What is the purpose of debiting the income summary for the balance and crediting capital in the REID steps?

• To close revenue accounts

• To transfer net income to the owner's capital

• To close the drawing account

• To record additional capital contributions

In the final step of REID, which accounts are affected and how?

• Debit capital; credit drawing

• Debit drawing; credit capital

• Debit income summary; credit each expense account

• Debit revenue; credit capital

Which entry correctly closes all revenue accounts under REID?

• Credit each revenue account; debit income summary

• Debit each revenue account; credit income summary

• Debit income summary; credit revenue

• Debit capital; credit revenue

Answer explanation

To close revenue accounts, you debit each revenue account to reduce their balances to zero and credit the income summary to reflect total revenues. Thus, the correct entry is 'Debit each revenue account; credit income summary'.

After closing revenues and expenses to the Income Summary, the balance in the Income Summary represents which of the following?

• Total assets

• Net income or net loss

• Owner's withdrawals

• Ending capital balance

Answer explanation

After closing revenues and expenses to Income Summary, the balance reflects the company's performance, indicating either net income or net loss for the period, making 'Net income or net loss' the correct choice.

Which of the following correctly matches each REID letter to its action?

• R: Close revenues to Capital; E: Close expenses to Income Summary; I: Close Income Summary to Drawing; D: Close Drawing to Capital.

• R: Close revenues to Income Summary; E: Close expenses to Income Summary; I: Close Income Summary to Capital; D: Close Drawing to Capital.

• R: Close revenues to Expenses; E: Close expenses to Capital; I: Close Income Summary to Revenues; D: Close Drawing to Income Summary.

• R: Close revenues to Drawing; E: Close expenses to Capital; I: Close Income Summary to Assets; D: Close Drawing to Liabilities.

Answer explanation

The correct choice matches the REID letters to their actions: R closes revenues to Income Summary, E closes expenses to Income Summary, I closes Income Summary to Capital, and D closes Drawing to Capital.

Which entry is used to close the drawings account at the end of the period?

• Debit drawing; credit capital

• Debit capital; credit drawing

• Debit income summary; credit drawing

• Debit drawing; credit income summary

Answer explanation

To close the drawing account, you debit capital and credit drawing. This reflects the reduction in the owner's equity due to withdrawals, ensuring the drawing account is reset for the new period.

A company has a net loss for the period. According to the REID steps, what effect does closing the Income Summary have on the capital account?

• Capital is credited for the amount of the loss.

• Capital is debited for the amount of the loss.

• Capital is unaffected.

• Drawing is credited for the amount of the loss.

Answer explanation

When a company has a net loss, closing the Income Summary results in debiting the capital account for the amount of the loss, reducing the owner's equity.

Which account is credited when closing the revenue accounts in the REID process?

• Capital

• Income Summary

• Drawing

• Expenses

Answer explanation

In the REID process, revenue accounts are closed to the Income Summary account. This account temporarily holds the total revenues and expenses before transferring the net income to the Capital account.