Question

Deluxe Pastry Co. had the following amounts for the period ending December 31: Revenues: $6,400 Expenses: $4,000 Dividends: $800 The closing entry for Expenses will include a:

1) Debit to Retained Earnings
2) Credit to Retained Earnings
3) Debit to Dividends
4) Credit to Dividends

Answer 1

The closing entry for Deluxe Pastry Co.'s expenses will include a debit to Retained Earnings because expenses are costs the company incurred, which decrease Retained Earnings.

Step-by-step explanation:

The closing entry for expenses in Deluxe Pastry Co.'s accounting books, given that the revenues are $6,400, expenses are $4,000, and dividends are $800, will include a debit to Retained Earnings and a credit to Expense accounts to bring their balances to zero for the new accounting period. Expenses decrease the Retained Earnings because they are costs the company has incurred to generate revenue. Since Retained Earnings represent the company's accumulated net income minus any dividends paid, the expenses must be subtracted from the net income.