Assume that no dividends were declared during the current year.Which of the following statements about the effect of a net loss on the closing process is correct?
A)If a company has a net loss during the current accounting period,then the ending Retained Earnings will be smaller than the beginning Retained Earnings.
B)When closing entries are prepared,Common Stock is debited if a company has a net loss.
C)If a company has a net loss,the closing entry will include debits to the revenue accounts,credits to the expense accounts,and a credit to Retained Earnings.
D)If a company has a net loss,the amount of revenues to be closed will be greater than the amount of expenses to be closed in the closing process.

Question

Quizplus · Accepted Answer

If a company has a net loss,the closing entry will include debits to the revenue accounts,credits to the expense accounts,and a debit (rather than a credit)to the Retained Earnings account for the amount of the net loss.That debit (which equals the amount of the net loss)will reduce the balance in the Retained Earnings account.As a result,the ending balance in the Retained Earnings account will be less than its beginning balance.

Assume That No Dividends Were Declared During the Current Year