Question

QUESTION 17 Use the following information to answer questions 17 thru 19: Cleaning Revenue $2500 Wages Expense $700 Rent Expense $500 Supplies Expense $300 Insurance Expense 5200 Depreciation Expense $100 The entry to close the Revenue account includes a Debit to Cleaning Revenue for $2500. Credit to Cleaning Revenue for $2500. Debit to Income Summary for $2500 Debit to Retained Earnings for $2500.

Answer 1

Solution of Question No. 17

The correct answeer would be option C. - Debit to Income Summary $2500.

Reason - The nature of revenue is credit nature so when the entity earns any revenue it credits the revenue for all the revenue occured. so when we need to close the revenue account we need to pass an debit entry to transfer the balance of revenue account to income summary and same would be seen in the income summary.

Cleaning Revene Account

Debit Side			Credit Side
Particulars	Amount	Partiulars	Amount
To Income Summary	2,500	Cleaning Revenue	2,500
Total	2,500	Total	2,500

Hence, the appropriate answer to close the revenue account would include an entry of debiting the income summary account.

Solution to Question No. 18 -

The correct option would be Option D - Credit to income summary for $1800.

Reason - The nature of all the expenses account is of debit so when any expenses incurred by the entity, the entity pass an entry of debiting the respective expense acccount and crediting the cash or bank account. So, when we need to close the expenses account we need to pass an entry of credit to income summary to transfer the closing balance of expenses account to income summary in order to calculate the net income for the year.

Solution to Question No. 19 -

The correct option would be Option D - Credit to Retained Earning for $700

Reason - In the present sum, we can see the income summary is debited by $2,500 and the same is credited by $1,800, so we can say we have excess of debit balance in the income summary presently, so in order to close or balance the income summary account we need to credit it with the balancing figure i.e. $700.

So now the quention arises where to credit the same ?

Option 1. Net Income - There is no such account named net income it is only a term which is used in general scenario.

Option 2. Income Summary - The entry in the income summary account would never include a word income summary, we cannot use the account name to close the account in itself the account.

Option 3. Common Stock - This account cannot be used here because the profit is transferred to this account after distribution of profits so after the profit is distributed to the stakeholers from the retained earning we transfer the remaining balance to common stock so this would not be a correct answer.

Option 4. Retained Earnings - This would be the corret answer as explained above.

I am providing the combine Income Summary account for your better understanding below -

Income Summary Account

Debit Side			Credit Side
Particulars	Amount	Particulars	Amount
Wages Expenses	700	Cleaning Revenue	2,500
Rent Expenses	500
Supplies Expenses	300
Insurance Expenses	200
Depreciation Expenses	100
Retianed Earnings	700
Total	2,500	Total	2,500

Thank You and keep using homeworklib.