**Closing Entries in Accounting: Handling Net Income**When a business has a net income for the period, it must close the balance of the Income Summary account correctly. The journal entry to accomplish this task involves transferring the net income to the owner's capital account.**Journal Entry for Closing Income Summary:**If a business has a net income for the period, the correct journal entry to close the balance of the Income Summary account is:- **Debit Income Summary, credit owner's capital.****Multiple Choice Options:**A. a debit to Income Summary, a credit to owner’s capitalB. a debit to owner’s capital, a credit to FeesC. a debit to Fees, a credit to owner’s capitalD. a debit to owner’s capital, a credit to Income Summary**Explanation:**- **Income Summary Account:** This account is used to summarize revenues and expenses for the period and to determine the net income or net loss.- **Owner’s Capital Account:** The owner’s capital account reflects the owner's equity in the business.At the end of the accounting period, the balance in the Income Summary account (which represents the net income) is transferred to the owner’s capital account to update the owner's equity.Hence, the correct journal entry involves debiting the Income Summary account to clear its balance and crediting the owner's capital account to reflect the increase in owner’s equity due to the net income. Option A is correct.**Source: McGraw-Hill Education, 2021.**This information is crucial for those studying accounting as it assists in understanding the process of closing books at the end of an accounting period.

If a business has a net income for the period, the journal entry to close the balance of the Income Summary account is a debit to Income Summary, a credit to owner's capital a debit to owner's capital, a credit to Fees. a debit to Fees, a credit to owner's capital O a debit to owner's capital, a credit to Income Summary

If a business has a net income for the period, the journal entry to close the balance of the Income Summary account is a debit to Income Summary, a credit to owner's capital a debit to owner's capital, a credit to Fees. a debit to Fees, a credit to owner's capital O a debit to owner's capital, a credit to Income Summary

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Bookkeeping

Bookkeeping is the process of recording the financial transactions of a company on a regular basis. With the process of bookkeeping, companies can track important financial information that helps management in making crucial decisions.

Question

**Closing Entries in Accounting: Handling Net Income**

When a business has a net income for the period, it must close the balance of the Income Summary account correctly. The journal entry to accomplish this task involves transferring the net income to the owner's capital account.

**Journal Entry for Closing Income Summary:**

If a business has a net income for the period, the correct journal entry to close the balance of the Income Summary account is:

- **Debit Income Summary, credit owner's capital.**

**Multiple Choice Options:**

A. a debit to Income Summary, a credit to owner’s capital

B. a debit to owner’s capital, a credit to Fees

C. a debit to Fees, a credit to owner’s capital

D. a debit to owner’s capital, a credit to Income Summary

**Explanation:**

- **Income Summary Account:** This account is used to summarize revenues and expenses for the period and to determine the net income or net loss.
- **Owner’s Capital Account:** The owner’s capital account reflects the owner's equity in the business.

At the end of the accounting period, the balance in the Income Summary account (which represents the net income) is transferred to the owner’s capital account to update the owner's equity.

Hence, the correct journal entry involves debiting the Income Summary account to clear its balance and crediting the owner's capital account to reflect the increase in owner’s equity due to the net income. Option A is correct.

**Source: McGraw-Hill Education, 2021.**

This information is crucial for those studying accounting as it assists in understanding the process of closing books at the end of an accounting period.

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