Question

Dogwood, Inc. earned revenues of $11,000 and incurred expenses of $7,500. The company declared and paid cash dividends of $2,000. What is the balance in the Income Summary account prior to closing net income or loss to the Retained Earnings account?

A. credit balance of $3,500
B. credit balance of $11,000
C. debit balance of $3,500
D. debit balance of $1,500

Answer 1

A) credit balance of $3,500

Step-by-step explanation:

Expenses are closed by:

Dr Income summary 7,500

Cr Expenses 7,500

Revenues are closed by:

Dr Revenues 11,000

Cr Income statement 11,000

the balance before closing income summary = 11,000 (credit) - 7,500 (debit) = 3,500 (credit)

finally, the account is closed by:

Dr Income statement 3,500

Cr Retained earnings 3,500