Question

In order to close the dividends account, the

A. income summary account should be debited.
B. income summary account should be credited.
C. retained earnings account should be credited.
D. retained earnings account should be debited.

Answer 1

D. retained earnings account should be debited.

To close the dividends account, the retained earnings account should be debited, which reflects the distribution of earnings paid out to shareholders.

Step-by-step explanation:

The question pertains to the process of closing the dividends account in accounting. When closing the dividends account, the correct answer is that the retained earnings account should be debited.

Dividends are distributions of a company's earnings to its shareholders and when the year-end closing process takes place, the balance in the dividends account (which is a contra equity account) is transferred to retained earnings.

This reduces the retained earnings since dividends decrease the amount of earnings retained within the company.