Question

Jen Rogers withdrew a total of $26,000 from her business during the current year. The entry needed to close the withdrawals account is:________

a. Debit Income Summary and credit Dividends for $20,000.
b. Debit Retained Earnings and credit Dividends for $20,000.
c. Debit Dividends and credit Cash for $20,000.
d. Debit Dividends and credit Retained Earnings for $20,000.
e. Debit Income Summary and credit Cash for $20,000.

Answer 1

b. Debit Retained Earnings and credit Dividends for $20,000.

Step-by-step explanation:

The journal entry to record the withdrawals or dividends is:

Dr Dividends 20,000

Cr Cash 20,000

at the end of the year, you close the dividends account against retained earnings:

Dr Retained earnings 20,000

Cr Dividends 20,000

this entry reduces the company's equity since retained earnings has a normal credit balance.