The closing entry for the $700 balance of Wages Expense includes
A) a credit to Income Summary for $700.
B) a debit to Income Summary for $700.
C) a debit to Wages Expense for $700.
D) a credit to Wages Payable for $700.

Question

Quizplus · Accepted Answer

The purpose of the closing entry is to transfer the balances of temporary accounts (such as Wages Expense) to the permanent Retained Earnings account. Since the balance in Wages Expense is a debit balance (meaning debits exceed credits), the closing entry must include a credit to Wages Expense for the same amount. This will zero out the balance in Wages Expense. Then, to transfer this balance to Retained Earnings, the closing entry will include a debit to Income Summary (which is a temporary account) for the same amount. In this case, the closing entry will include a debit to Income Summary for $700 and a credit to Wages Expense for $700.

The Closing Entry for the $700 Balance of Wages Expense