Asked by Ja’Juan Clark on Jul 22, 2024
Verified
A company had revenues of $75,000 and expenses of $62,000 for the accounting period.Dividends of $8,000 were paid in cash during the same period.Which of the following entries could not be a closing entry?
A) Debit Income Summary $13,000; credit Retained earnings $13,000.
B) Debit Income Summary $75,000; credit Revenues $75,000.
C) Debit Revenues $75,000; credit Income Summary $75,000.
D) Debit Income Summary $62,000,credit Expenses $62,000.
E) Debit Retained earnings $8,000,credit Dividends $8,000.
Closing Entry
Journal entries made at the end of an accounting period to transfer balances from temporary accounts to permanent ones and prepare the company's books for the next period.
Income Summary
An account in the ledger that is used to gather all temporary accounts during the closing process, to transfer their balances to permanent accounts.
Retained Earnings
The portion of net earnings not paid out as dividends but retained by the company to reinvest in its core business or to pay debt.
- Comprehend the technique for closing accounts, involving income summaries and dividends, at the close of the fiscal year.
Verified Answer
RA
Rajan AthwalJul 25, 2024
Final Answer :
B
Explanation :
Closing entries are made to transfer the balances of temporary accounts (revenues, expenses, and dividends) to the permanent account (Retained earnings). Option B cannot be a closing entry as it debits Income Summary with $75,000, which is the total revenue of the company for the period, and credits Revenues with the same amount. This entry suggests that the company is carrying over its revenue balance to the next accounting period, which is not correct. The correct entry would be to credit Income Summary with $13,000 (revenue - expenses) and debit Retained earnings with the same amount.
Learning Objectives
- Comprehend the technique for closing accounts, involving income summaries and dividends, at the close of the fiscal year.