Question

In the closing process the company transfers all of the _____ and ______ account balances (income statement items) to a clearing or suspense account called ______.

Answer 1

In the closing process, a company transfers all income statement items (revenues and expenses) to Retained Earnings, clearing these accounts for the new period.

Step-by-step explanation:

In the closing process, a company transfers all of the revenues and expenses account balances, which are income statement items, to a clearing or suspense account called Retained Earnings. This is done to prepare the income statement accounts for the next accounting period by bringing their balances to zero. This allows the new period to begin with no cumulative figures from the previous period. Post-closing, the Retained Earnings account will reflect the company's profit or loss for the period that was just closed out.

Answer 2

In the closing process of accounting, the company transfers all revenue and expense account balances, which are items from the income statement, into a temporary account known as Income Summary.

Step-by-step explanation:

During the accounting cycle's closing phase, the goal is to reset the accounts for the new period. This involves transferring the balances of revenue and expense accounts to the Income Summary account. Revenue accounts, representing income generated, are closed to calculate the company's total revenue for the period. Simultaneously, expense accounts, reflecting costs incurred to generate that revenue, are closed as well.

By transferring these balances to the Income Summary account, the company can ascertain the net income or net loss for the accounting period. This temporary holding account acts as a clearinghouse for the company's income and expenses before finalizing the financial statements.

Once the revenue and expense accounts have been cleared into the Income Summary account and the net income or loss has been calculated, the balance in the Income Summary is then closed out into the retained earnings or owner's equity account. This step finalizes the adjustment process and prepares the accounts for the subsequent accounting period.

The purpose of using the Income Summary account is to facilitate the closure of temporary accounts, summarizing the period's financial performance before transferring it to the equity section of the balance sheet. This process allows for a clean start to the new accounting period while accurately reflecting the company's financial position and performance in the financial statements.