Question

UUIU UCSI La N AMA | || 1A BI Ube XX? || ALASSES ndate To keep up-to-date with security updates, fixes, and improvements, choose Check for Updates. Office to Create and Edit Buy Office or sign in to activate Office if you've already bought it. D) service charges. 16) Your company has the following balances on December 31 prior to closing entries: Revenues Retained Earnings, Jan. 1 Cash Expenses Accounts Payable Dividends Supplies $35,000 10,000 7,000 23,000 4.000 1,000 18,000 Based upon the balances above, what is the journal entry you would do to close out the temporary accounts? In other words what is the closing entry? A) DR Expenses $23,000; CR Revenues $35,000; CR Retained Earnings $12,000 B) DR Revenues $35,000; CR Expenses $23,000; CR Retained Earnings $12,000. C) DR Revenues $35,000; DR Expenses $23,000; CR Retained Earnings $12,000 D) DR Retained Earnings $12,000; CR Revenues $35.000; CR Expenses $23,000 12 17) Cash and Cash Equivalents on the balance sheet represent 1696 words Of English (United States Focus- rivo. Hoya easy to transfer ownership Cons: harder to set up.
The answer is B, but can you please explain in detail why you debit revenue, and why you credit expense and retained earnings. Thank you so much I will give good rating for explanation

Answer 1

Revenue and expenses are temporary accounts which needs to be closed at year end The normal balance of revenue is credit and that of expenses is debit , so when you are supposed to close these accounts in your books you need to pass contra account , thus debiting revenue account with the same account will close that account in the books as credit side of 35000 and debit side of $35000 will make the balance zero in the books Similar is the case with expense it shows debit balance of $23,000 hence crediting the expense with the same amount of 23000 will close that account in the books the difference between revenue - expense = net income is transferred to retained earnings