State BPA Fundamental Accounting Practice Exam

The journal entry to close the revenue account is?

1. Debit income summary; Credit revenue for total

2. Debit each revenue account; Credit income summary for total revenue

3. Credit expenses; Debit income summary

4. Debit owner’s equity; Credit revenue

The correct answer is: Debit each revenue account; Credit income summary for total revenue

The closure of revenue accounts is an essential aspect of the accounting cycle, specifically in the closing entries process. When preparing for this step, the goal is to reset the temporary accounts, which include revenue, expenses, and dividends, to prepare for the new accounting period. The correct approach to closing the revenue account involves debiting each revenue account to bring their balance down to zero and crediting the income summary for the total revenue earned during the period. This method captures the total revenue's impact on the overall income, allowing it to be reflected in the income summary, which will eventually be closed to the owner's equity. Each revenue account is debited because this removes its credit balance, effectively zeroing it out. The credit to the income summary account reflects the total of all revenue accounts being transferred for reporting purposes. This is pivotal in summarizing financial performance over the accounting period. Understanding this process is crucial because it illustrates how revenues are accounted for in the overall financial results and prepares the accounts for the next period's transactions.