LO 5.1 Which account would be credited when closing the account for fees earned for the year?Choose one answer from the options below.A. Accounts ReceivableB. Fees Earned RevenueC. Unearned Fee RevenueD. Income Summary
Question
LO 5.1 Which account would be credited when closing the account for fees earned for the year?Choose one answer from the options below.A. Accounts ReceivableB. Fees Earned RevenueC. Unearned Fee RevenueD. Income Summary
Solution
The correct answer is D. Income Summary.
Here's why:
At the end of the accounting period, all revenue and expense accounts must be closed. The account for Fees Earned Revenue is a revenue account and it will be closed to the Income Summary account.
The process is as follows:
- Debit the Fees Earned Revenue account to decrease its balance to zero.
- Credit the Income Summary account to increase its balance by the same amount.
This process is part of the closing entries in accounting, which transfer the balances from temporary accounts (like revenue and expense accounts) to permanent accounts. This prepares the company's books for the next accounting period.
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