Question

Tara Westmont, the proprietor of Tiptoe Shoes, had annual revenues of 185,000, expenses of 103,700, and withdrew 18,000 from the business during the current year. The owner's capital account before closing had a balance of 297,000. The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is:

1) Debit T. Westmont, Capital 297,000; credit Income Summary 297,000
2) Debit T. Westmont, Capital 63,300; credit Income Summary 63,300
3) Debit Income Summary 63,300; credit T. Westmont, Capital 63,300
4) Debit Income Summary 81,300, credit T. Westmont, Capital 81,300
5) Debit T. Westmont, Capital 81,300; credit Income Summary 81,300

Answer 1

The entry to close the Income Summary account at the end of the year is to debit T. Westmont, Capital 63,300 and credit Income Summary 63,300.

Step-by-step explanation:

The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is option 2) Debit T. Westmont, Capital 63,300; credit Income Summary 63,300.

To close the Income Summary account, we need to transfer the net income (revenues - expenses) to the owner's capital account. In this case, the net income is $81,300 ($185,000 - $103,700). Since the owner withdrew $18,000 from the business, we subtract that from the net income to get $63,300. We debit T. Westmont, Capital for $63,300 and credit Income Summary for the same amount.