Final answer:
The fourth closing entry involves transferring the dividends account balance to the retained earnings account by debiting retained earnings and crediting dividends. This resets the dividends account to zero for the new accounting period and adjusts retained earnings for the payouts.
Step-by-step explanation:
The fourth closing entry in accounting is the process of transferring the balance of the dividends account to the retained earnings account. This is done at the end of the fiscal year to prepare the company's books for the next period. The closing entry effectively resets the dividends account balance to zero for the start of the new accounting period.
To close the dividends account, you would debit the retained earnings account and credit the dividends account. Here's an example of how this entry would look:
- Debit Retained Earnings
- Credit Dividends
Assuming the dividends account had a balance of $10,000, the entry would be:
- Debit Retained Earnings $10,000
- Credit Dividends $10,000
This entry effectively reduces the retained earnings by the amount of dividends paid out during the period, thus closing out the dividends account.