Question

Olsteen, Inc., earned revenues of​ $65,000 and incurred expenses of​ $73,000. No dividends were declared. Which...

Olsteen, Inc., earned revenues of​ $65,000 and incurred expenses of​ $73,000. No dividends were declared. Which of the following statements is​ correct?

A. The entry to close Income Summary is the same regardless of a net income or a net loss.

B. Retained Earnings will be debited for​ $8,000 and Income Summary will be credited for​ $8,000.

C. The entries to close revenues and expenses will differ if there is a net loss.

D. The entry to close Income Summary requires a debit to the Income Summary account.

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Answer #1

Income summary account is where all the income and expenses are settled at the end of the period and it helps determine if the company has made profits or loss. It is also known as Revenue and Expense Summary Account. The net amount is then transferred to retained earnings in the balance sheet (for a corporation or to owners’ capital for sole partnership). Hence, this account is classified under owner’s equity.

therefore the net amount difference of $8000 will be credited to income summary account.

Answer : Option B

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