Which of the following accounts will be closed by crediting retained earnings?

Question

BlackTom AI · Accepted Answer

Revenue increases owners’ equity, so closing a revenue account results in a credit to retained earnings.

Relevant knowledge points:
- Temporary accounts (revenues, expenses, dividends) are closed to retained earnings (or to Income Summary then to retained earnings) at period end; permanent accounts (assets, liabilities, equity except retained earnings) are not closed.
- Revenues have normal credit balances; expenses have normal debit balances. Closing transfers the net effect to retained earnings: revenues increase retained earnings (credit), expenses decrease retained earnings (debit).
- Contra-asset and liability accounts (e.g., accumulated depreciation, accounts payable) are permanent and never closed.

Step-by-step reasoning with journal examples:
1. Service revenue (a revenue account) normally has a credit balance. To close it directly to retained earnings you would debit Service Revenue and credit Retained Earnings. Example: Service Revenue $50,000
   - Journal: Debit Service Revenue $50,000; Credit Retained Earnings $50,000.
   This credits retained earnings because revenue increases equity.

2. Depreciation expense (an expense account) has a debit balance. To close it you credit Depreciation Expense and debit Retained Earnings. Example: Depreciation Expense $5,000
   - Journal: Debit Retained Earnings $5,000; Credit Depreciation Expense $5,000.
   This debits retained earnings (reduces equity), so it is not closed by crediting retained earnings.

3. Accumulated depreciation is a contra-asset (permanent) and is not closed; no closing entry affects retained earnings for this account directly.

4. Accounts payable is a liability (permanent) and is not closed at period end.

Why the correct answer is correct:
Service revenue is a temporary revenue account whose closing entry increases retained earnings, therefore the closing entry credits retained earnings. The other options are either expense (would debit retained earnings) or permanent accounts (not closed).

Conclusion: The correct choice is Service revenue, which matches the provided answer.

Which of the following accounts will be closed by crediting retained earnings?Single choice

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