Question

The Retained Earnings account has a credit balance of $40,000 before closing entries are made. Total revenues for the period are $58,200, total expenses are $41,300, and dividends are $10,200. What is the correct closing entry for the expense accounts?

A. Debit Income Summary $41,300; credit Expense accounts $41,300.
B. Debit Expense accounts $40,000; credit Retained Earnings $40,000.
C. Credit Expense accounts $41,300; debit Retained Earnings $41,300.
D. Debit Expense accounts $41,300; credit Income Summary $41,300.
E. Debit Income Summary $41,300; credit Retained Earnings $41,300.

Answer 1

Answer:

A. Debit Income Summary $41,300; credit Expense accounts $41,300

Explanation:

At the end of the period, the revenue and expenses for the company are closed into the income summary account which in turn is closed into the retained earnings account.

For revenue, the entries are debit revenue and credit income summary with the revenue for the year. For expenses, credit expenses and debit income summary with the total expense for the year.

As such, given that Total revenues for the period are $58,200, total expenses are $41,300, and dividends are $10,200, the correct closing entry for the expense accounts is

Debit Income Summary $41,300

Credit Expense accounts $41,300