The basic journal entry to create a general reserve is:

Question

Quizplus · Accepted Answer

The most common way to create a general reserve is to debit Retained Earnings and credit General Reserve. This indicates that the company is setting aside some of its profits for future use. Choice A is not correct because Income is not yet recognized until closing entries are made. Choice B is incorrect because Retained Earnings and General Reserve are both equity accounts, and it does not make sense to credit one equity account to create another. Choice C is incorrect because Profit or Loss Summary is not a valid account.

The Basic Journal Entry to Create a General Reserve Is