Hot Tamale Company had $120,000 of revenues and $125,000 of expenses. No dividends were paid. The first of the year-end closing entries should include which of the following line items?

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The first step in the year-end closing process is to transfer the revenue and expense accounts to the income summary account. Since the company had $120,000 in revenue and $125,000 in expenses, the income summary account would have a credit balance of $5,000 ($120,000 - $125,000 = -$5,000). Therefore, the first closing entry would be to credit the income summary account for $120,000, representing the revenue from the period, and debit the income summary account for $125,000, representing the expenses from the period. The net result is a debit balance of $5,000 in the income summary account.

Hot Tamale Company Had $120,000 of Revenues and $125,000 of Expenses