Question

The Retained earnings account has a credit balance of $50,000 before closing entries are made. Services revenue for the period is $68,200, wages expense is $46,300, and dividends are $14,200. What is the correct closing entry for the expense accounts

Answer 1

The correct closing entry for the expense accounts will be Debit Revenue accounts $68,200; credit Income Summary $68,200.

At the conclusion of an accounting period, a closure entry is performed to move balances from a temporary account to a permanent account.

Companies use closure entries to reset temporary accounts, which show balances for a particular accounting period, to zero. In doing so, the company transforms these balances into accounts that will always be present on the balance sheet. These continuous accounts show a business's past financial data.

An illustration of a closing entry is when you add up all the revenue and expense account totals at the end of an accounting period to an income summary account, which effectively makes the account balance in the income summary account the net profit or loss for the period. Then, you shift the balance to the retained earnings account from the income summary account.

The net income or loss for the period is accumulated in the retained earnings account, and the temporary account balances are reset to zero so they can be used once more to store period-specific amounts in the following accounting period.

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