Question

After preparing and posting the closing entries for revenues and expenses, the income summary account has a debit balance of $33,000. The entry to close the income summary account will be:

A) Debit Owner Capital $33,000; credit Income Summary $33,000.
B) Debit Owner Withdrawals $33,000; credit Income Summary $33,000.
C) Debit Income Summary $33,000; credit Owner Withdrawals $33,000.
D) Credit Owner Capital $33,000; debit Owner Withdrawals $33,000.
E) Debit Income Summary $33,000; credit Owner Capital $33,000

Answer 1

The correct entry to close the Income Summary account with a $33,000 debit balance is to debit Owner Capital and credit Income Summary for $33,000, indicating a loss that decreases the owner's equity.

Step-by-step explanation:

After preparing and posting the closing entries for revenues and expenses, if the income summary account has a debit balance of $33,000, it indicates that the company has incurred a loss for that period.

The correct closing entry to transfer this loss to the owner's capital account would be to debit (decrease) the owner's capital and credit (close out) the Income Summary. Therefore, the correct entry is:

A) Debit Owner Capital $33,000; credit Income Summary $33,000.

By debiting the Owner Capital account, the loss is subtracted from the owner's equity, and crediting the Income Summary clears the account in preparation for the next accounting period.