Question

For the year ended December 31, a company had revenues of $205,000 and expenses of $123,000 were paid during the year. Which of the following entries could not be a closing entry?

a) Debit Income Summary $205,000; credit Revenues $205,000.
b) Debit Retained Earnings $41,000; credit Dividends $41,000.
c) Debit Revenues $205,000; credit Income Summary $205,000.
d) Debit Income Summary $82,000; credit Retained Earnings $82,000.

Answer 1

The closing entry that cannot be correct is option d) Debit Income Summary $82,000; credit Retained Earnings $82,000 because it does not follow the correct transfer of balances from temporary to permanent accounts.

Step-by-step explanation:

To determine which of the given entries could not be a closing entry, let's understand the purpose of closing entries. Closing entries are made at the end of the accounting period to transfer the balances of temporary accounts (revenue, expense, and income summary) to the permanent account (retained earnings). The entries are made by debiting the temporary accounts and crediting the income summary, then debiting the income summary and crediting retained earnings. Hence, the correct closing entry is option d) Debit Income Summary $82,000; credit Retained Earnings $82,000 because it follows the correct transfer of balances from the temporary to permanent accounts.