4-17RQ - Horngren'S Financial And Managerial Accounting

Question

If a business had a net loss for the year, what would be the closing entry to close Income Summary and transfer the net loss to the Retained Earnings account?

Step-by-Step Solution

Answer

The following entry will be recorded:

Date	Accounts and Explanation	Debit	Credit
	Retained Earnings	XXX
	Income Summary		XXX

Explanation on Closing Process

Closing processes are required at the end of the year. It includes the journalizing and posting the entries to close revenues, expenses, income summary and dividends accounts.

Closing of Income Summary Account

In case of loss in income summary account, it is closed by debiting retained earnings account and crediting income summary account.