JournaldrillClosing Income Summary and dividends
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
After closing revenues and expenses, Hilltop Pet Sitting, Inc.'s Income Summary has a credit balance of $7,310, which is the year's net income. The Dividends account has a debit balance of $4,000. Record the two remaining closing steps in one compound entry.
What this exercise teaches
Income Summary's credit balance is net income, so it is debited for $7,310 and Retained Earnings is credited. Dividends has a debit balance, so it is credited for $4,000 and Retained Earnings is debited. Retained Earnings rises by the net $3,310, and entering that net amount on one line is equally correct. Dividends are not an expense and never pass through Income Summary.
A hint if you get stuck
Net income moves from the clearing account into equity, and dividends reduce that same equity account directly.
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