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Shown below is a trial balance for Novelty Toys,Inc. ,on December 31,after adjusting entries:

-The entry to close Salaries Expense account will:
A)Transfer the total of Salaries Expense directly to Retained Earnings.
B)Include a debit to Income Summary.
C)Include a debit to Salaries Expense.
D)Include a credit to Capital Stock.

Question

[The following information applies to the questions displayed below.]
Shown below is a trial balance for Novelty Toys,Inc. ,on December 31,after adjusting entries:
 
-The entry to close Salaries Expense account will:
A)Transfer the total of Salaries Expense directly to Retained Earnings. 
B)Include a debit to Income Summary. 
C)Include a debit to Salaries Expense. 
D)Include a credit to Capital Stock.

Quizplus · Accepted Answer

To close the Salaries Expense account, a debit must be made to Income Summary, which is a temporary account used to summarize all revenue and expense accounts. This will also require a credit to Salaries Expense to reduce its balance to zero. The balance in Income Summary will then be transferred to Retained Earnings through a closing entry. Option A is incorrect because Salaries Expense is a temporary account and does not have a direct relationship with Retained Earnings. Option C is incorrect because a debit to Salaries Expense is already included in the closing entry. Option D is incorrect because Capital Stock is not related to the closing process.

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