Final answer:
The record entry to close revenue and expense accounts to retained earnings requires debiting revenue accounts, crediting expense accounts, and transferring the net result to the retained earnings account. This is done through a series of entries that zero out revenue and expense accounts and adjust retained earnings accordingly.
Step-by-step explanation:
The record entry to close revenue and expense accounts to retained earnings is a standard process in accounting, typically performed at the end of an accounting period. To close these accounts, one must make entries that transfer the balances of revenue and expense accounts to the retained earnings account. This process involves debiting revenue accounts to reduce their credit balances to zero and crediting expense accounts to reduce their debit balances to zero. Finally, the net income or net loss (revenues minus expenses) is transferred to the retained earnings account.
Here is an example of the closing entries:
- Debit all revenue accounts and credit the Income Summary account.
- Debit the Income Summary account and credit all expense accounts.
- If the Income Summary account has a credit balance, indicating a net income, debit the Income Summary account and credit the Retained Earnings account. Conversely, if there is a debit balance, indicating a net loss, debit the Retained Earnings account and credit the Income Summary account.
- Debit the Dividends account and credit the Retained Earnings account if dividends were declared.
Note that the Dividends account is closed directly to the Retained Earnings account, not through the Income Summary account. After these entries, the revenue, expense, and dividends accounts will have zero balances, and the balance in the Retained Earnings account will reflect the net changes due to the period's operations and dividend distributions.