The last step in completing the accounting cycle is clYou answered 3 out of 4 correctly. Asking up to 7.osing entries. After closing all revenue and expense accounts, Softie Limited Company had a debit balance of $16,354 in its income summary account. What would be the proper journal entry to record the closing of the income summary account?

Question

Revenue 16,354 Income Summary 16,354

Inventory 16,354 Income Summary 16,354

Retained Earnings 16,354 Income Summary 16,354

Expenses 16,354 Income Summary 16,354

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Answer 1

To close the income summary account with a debit balance of $16,354, you need to transfer that balance to the Retained Earnings account. Since the income summary has a debit balance, it means that expenses exceeded revenues for the period, resulting in a loss.

The proper journal entry to close the income summary account would be:

Retained Earnings              16,354 
     Income Summary                        16,354

This entry reduces the income summary account to zero and decreases retained earnings, reflecting the loss for the period. Therefore, the correct choice among your options would be:

Retained Earnings 16,354 Income Summary 16,354