Intro: Closing Entries and Post-Closing Trial Balance

Which accounts are closed at the end of an accounting period?

• Assets, liabilities, and capital

• Cash, receivables, and prepaid accounts

• Revenue, assets, and notes payable

• Revenue, expenses, and drawing accounts

Answer explanation

Temporary accounts (revenue, expenses, drawing) are closed each period to reset them to zero. Permanent accounts like assets, liabilities, and capital carry their balances forward.

Tags

Blooms Level: Remember

What is the purpose of the Income Summary account?

• Tracks owner withdrawal activity

• Collects revenue and expense totals temporarily

• Maintains a permanent cash transaction record

• Holds running totals of assets and liabilities

Answer explanation

Income Summary temporarily collects all revenue and expense balances during closing so the net income or loss can be transferred to owner's capital in one entry.

Tags

Blooms Level: Understand

Which accounts appear on a post-closing trial balance?

• Only temporary accounts reset to zero

• Only revenue and expense accounts with balances

• Only permanent accounts with non-zero balances

• All accounts listed in the general ledger

Answer explanation

After closing, only permanent accounts (assets, liabilities, owner's capital) retain balances. Temporary accounts have zero balances and do not appear on the post-closing trial balance.

Tags

Blooms Level: Remember

How does a closing entry differ from an adjusting entry?

• Closing zeros temporaries; adjusting updates balances

• Closing updates prepaids; adjusting resets revenues

• Closing records daily transactions; adjusting closes ledger

• Closing corrects errors; adjusting transfers net income

Answer explanation

Adjusting entries bring account balances current before statements are prepared. Closing entries then zero out temporary accounts to prepare for the next period.

Tags

Blooms Level: Understand

When re-adding trial balance columns reveals no error, what should a clerk check next?

• Whether posting totals transferred correctly

• Whether prior-period entries were skipped

• Whether a new chart of accounts is needed

• Whether the post-closing balance was early

Answer explanation

After re-adding columns, verifying that journal amounts posted correctly to the ledger is the next logical step, as posting errors are the most common cause of remaining imbalances.

Tags

Blooms Level: Apply

After closing entries, the Income Summary account balance should be

• Equal to total revenue for the period

• Zero, transferred fully to owner's capital

• Carried forward to the next accounting period

• Equal to total expenses for the period

Answer explanation

The final closing entry transfers Income Summary's net balance to owner's capital, leaving Income Summary with a zero balance. It is a temporary account and cannot carry a balance forward.

Tags

Blooms Level: Remember