Question

After preparing and posting the closing entries to close revenues (and gains) and expenses (and losses), the income summary account has a debit balance of $33,000. the entry to close the income summary account will include: group of answer choices

O a debit of $33,000 to common stocks.
O a credit of $33,000 to common stock.
O a debit of $33,000 to income summary.
O a debit of $33,000 to retained earnings.
O a credit of $33,000 to retained earnings

Answer 1

The entry to close the Income Summary account with a debit balance of $33,000 should include a debit to Retained Earnings and a credit to Income Summary. This transaction reflects the net loss and its impact on equity, specifically the reduction of Retained Earnings.

Step-by-step explanation:

When closing the accounts at the end of an accounting period, the balance in the Income Summary account represents the net result of the company's revenues and expenses.

If the Income Summary has a debit balance, it indicates a net loss for the period. To close the Income Summary account, we need to transfer this balance to the appropriate equity account.

The correct entry to close the Income Summary account that has a debit balance of $33,000 would be a credit to the Income Summary account. This balances out the account, bringing it to zero.

The other part of the entry involves debiting the Retained Earnings account to record the loss, which reduces equity.

Thus, the correct option for closing the Income Summary account with a debit balance of $33,000 is:
Debit: Retained Earnings for $33,000
Credit: Income Summary for $33,000

This entry reflects that the net loss for the period will decrease the company's retained earnings, which is a component of shareholder equity.

It does not involve the Common Stock account, as common stock represents the amount of equity invested by shareholders and is not affected by the closing of the Income Summary.