Tuesday, January 15, 2008

Journal Entry for Net Loss

What is accounting journal entry for a net loss?

The journal entries to close revenues and expenses for a company which suffers a net loss (opposite of net income) must include a:
A. Debit to retained earnings C. Credit to Retained Earnings
B. Debit to salaries expense D. Credit to sales revenue

Correct Answer: A

Explanation for Journal Entry Accounting Problem:

Unfortunately, for some companies, expenses sometimes are more than revenues, so a net loss rather than net income is recorded. Just as net income increases retained earnings, a net loss decreases retained earnings.

To close revenues and expenses with a net loss, on must credit the temporary account and debit retained earnings.

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