Rose Company earned revenues of $15,000 and incurred expenses of $9,000. The withdrawals of Mary Rose, the owner, were $3,000. What is the balance in the Income Summary account prior to closing net income or loss to the Rose, Capital account?

Question

Quizplus · Accepted Answer

The Income Summary account is used to summarize revenues and expenses for the period and to determine net income or loss. To find the balance in the Income Summary account, we need to subtract expenses and withdrawals from revenues:

Revenues: $15,000
Expenses: $9,000
Withdrawals: $3,000

Net Income = Revenues - Expenses = $15,000 - $9,000 = $6,000

Since there were no additional revenues or expenses listed in the question, the balance in the Income Summary account would be the same as the net income. However, since Mary Rose's withdrawals were also listed, we need to subtract that from the net income to get the balance in the Income Summary account:

Balance in Income Summary = Net Income - Owner's Withdrawals = $6,000 - $3,000 = $3,000

Since withdrawals decrease owner's equity (similar to expenses), the balance in the Income Summary account is a credit balance of $3,000.  Therefore, the correct answer is C) Credit balance of $6,000.

Rose Company Earned Revenues of $15,000 and Incurred Expenses of $9,000