Practice prompt · Q:transactions-to-statements/closing-entries-001

Prepare a direct close and retained-earnings rollforward

Practice calculating temporary balances, direct closing entries, ending retained earnings, and the post closing trial balance.

Updated Sep 5, 2026 Review due Nov 6, 2026

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A corporation uses direct closing entries to Retained Earnings. The complete adjusted trial balance below is stated in US dollars. Owner Distributions is its temporary dividend account. Contributed Capital records shareholder investment. There are no other equity changes. Which closing result is correct?

Account	Debit	Credit
Cash	$18,000
Accounts Receivable	6,000
Equipment	10,000
Accumulated Depreciation		$1,000
Accounts Payable		5,000
Contributed Capital		20,000
Retained Earnings		3,000
Service Revenue		12,000
Salaries Expense	4,000
Depreciation Expense	1,000
Owner Distributions	2,000
Total	$41,000	$41,000

Choose the best answer. A Close revenue, expenses, and distributions separately. Ending Retained Earnings is $8,000, and post-closing totals are $34,000. B Treat the distribution as an expense. Report $5,000 of net income and $8,000 of ending Retained Earnings. C Close every account so the post-closing trial balance totals zero on each side. D Credit Cash again for the expenses and distributions when closing the accounts.

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Answer: A

Close the $12,000 credit-balance Revenue with a debit and credit Retained Earnings. Close $4,000 Salaries Expense and $1,000 Depreciation Expense with credits and debit Retained Earnings $5,000. Close the $2,000 debit-balance Distribution with a credit and debit Retained Earnings. Net income is $7,000; $3,000 opening Retained Earnings plus $7,000 minus $2,000 distributions equals $8,000 ending. Permanent debits are $18,000 Cash, $6,000 Receivable, and $10,000 Equipment; permanent credits are $1,000 Accumulated Depreciation, $5,000 Payable, $20,000 Contributed Capital, and $8,000 Retained Earnings. Each side totals $34,000. Choice A is correct.