Olsteen, Inc., earned revenues of $65,000 and incurred expenses of $73,000. No dividends were declared. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Since the company incurred expenses greater than revenues, there is a net loss of $8,000. To close the accounts, Retained Earnings will be debited for the amount of the net loss ($8,000) and Income Summary will be credited for the same amount. Option A is incorrect since the entry to close Income Summary depends on whether the company incurred a net income or a net loss. Option C is incorrect since the entries to close revenues and expenses are the same regardless of whether there is a net loss or net income. Option D is incorrect since the entry to close Income Summary requires a credit to the Income Summary account, not a debit.