Question

for question 3(a) show the closing entry, why that isn't net income (Revenue-Expense) but retained earning

Answer is Given below

3) credit 39. Show the closing entry for that ABC Corp makes. <10 pts> 800 2300 2 1 ABC Corp Adjusted Trial Balance 12/31/2012 debit Cash 972,000 Accounts receivable 13,000 Prepaid rent 45,000 Inventory 7,200 Machinery 62,000 Cost of goods sold Rent expense v 15,000 Interest expense 6,000 Depreciation expense 2,000 Salary expense 1,400 Accumulated depreciation Salary payable Interest payable Accounts payable Unearned revenue Notes payable Common stock Consulting revenue Sales revenue Retained earnings 1,124,400 Do 3400 4,000 1,400 6,000 5,000 50,000 200,000 500,000 36,000 2,000 320,000 1,124,400 3b. What is the ending balance in retained earnings that ABC reports on its 12/31/2012 balance sheet. <5 pts>

Answer 1

Net Income is difference of Revenue and expenses. It is shown only when profit and loss account is prepared. Net income account is not maintained in T account format. Net Income is ultimately transferred to Retained earnings balance at end of the year.

Hence while passing closing entries in Financial Accounts difference between Revenue and expenses that is net income (loss) is closed to Retained earnings

If you are preparing profit and loss account then Net income is shown else while passing closing entries it is routed to Retained Earnings Account (this is maintained in T account format)