Question

If the adjusting entry to transfer Net income and retained earnings into the owner's capital account is made prior to the end of the year, the balance sheet shows:

a) A lower owner's equity
b) A higher owner's equity
c) No change in owner's equity
d) No balance sheet is prepared

Answer 1

If the adjusting entry to transfer Net income and retained earnings into the owner's capital account is made prior to the end of the year, it will result in a higher owner's equity on the balance sheet.

Step-by-step explanation:

If the adjusting entry to transfer Net income and retained earnings into the owner's capital account is made prior to the end of the year, it will result in a higher owner's equity on the balance sheet. This is because net income increases owner's equity, and when it is transferred to the owner's capital account, it further adds to the overall equity of the owner. Therefore, option b) A higher owner's equity is the correct answer.