If a business has a net loss for a fiscal period,the journal entry to close the Income Summary account is
A) a debit to Income Summary and a credit to Fees Income.
B) a debit to Income Summary and a credit to Capital.
C) a debit to Capital and a credit to Income Summary.
D) a debit to Capital and a credit to Drawing.

Question

Quizplus · Accepted Answer

If the business has a net loss for a fiscal period, the journal entry to close the Income Summary account is a debit to Capital and a credit to Income Summary. The net loss decreases the capital of the business, so it must be debited. The Income Summary account is credited for the same amount to close it out and transfer the loss or net income to the owner's equity account. Option A is incorrect because it incorrectly suggests that the loss should be credited to Fees Income, which is a revenue account. Option B is incorrect because it suggests that the loss should be credited to Capital, which would actually decrease the capital account, making it an incorrect entry. Option D is incorrect because the drawing account is typically used to record withdrawals made by the owner, not to record business losses.

If a Business Has a Net Loss for a Fiscal