Question

Closing entries transfer the balances of revenue, expense, and dividends accounts to which account?

a) Net Income
b) Retained Earnings
c) Share Capital
d) Common Shares

Answer 1

The balances of revenue, expense, and dividends accounts are transferred to the Retained Earnings account during the closing process in accounting.

Step-by-step explanation:

Closing entries transfer the balances of revenue, expense, and dividends accounts to the Retained Earnings account. The process of making closing entries is an integral part of the accounting cycle, which is aimed at zeroing out the temporary accounts so that they can start fresh in the new accounting period. More specifically, revenues and expenses are closed to the Income Summary account first, and then the net balance of the Income Summary account (which represents the net income or loss for the period) is closed to the Retained Earnings account. Similarly, dividend distributions are directly closed to Retained Earnings, reducing the balance of this equity account.