Question

Rider Company is in the process of preparing it closing entries. It first closes its revenue accounts by crediting the Income Summary account for $68,000 and then, closes its expense accounts by debiting the Income Summary account for $45,000. The entry to then close the Income Summary account is:_____. A. Debit Income Summary, $68,000, and credit Income Summary, $45,000. B. Debit Income Summary, $23,000, and credit Retained Earnings, $23,000. C. Credit Income Summary, $23,000, and debit Retained Earnings, $23,000. D. Debit Dividends, $45,000, and credit Income Summary, $45,000.

Answer 1

Answer:

B. Debit Income summary                  Debit              $ 23,000

   Retained Earnings                           Credit                                $ 23,000

Explanation:

The closing entries are recorded to close the current year's income statement  to the retained earnings account,

According to the data in the question, the revenue is closed to the credit of the income Summary  of $ 68,000 and the expenses are closed to the debit of the Income Summary of $ 45,000. This leaves a credit balance of $ 23,000 in the income summary account which is closed by debiting the income summary account and crediting the retained earnings account.

Since the revenue exceeded the expenses, the result ia  a profir which should increase the retained earnings account, which would be the case by a credit to the retained earnings account.