2 Ch 4-6 Question 16 (of 36) 2.50 polnts Assume that no dividends were declared

Question

2 Ch 4-6 Question 16 (of 36) 2.50 polnts Assume that no dividends were declared during the current year. Which of the following statements about the effect of a net loss on the closing process is correct O If a company has a net loss during the current accounting period, then the ending Retained Earnings will be smaller than the beginning Retained Earnings O When closing entries are prepared, Common Stock is debited if a company has a net loss O If a company has a net loss, the closing entry will include debits to the revenue accounts, credits to the expense accounts, and a credit to Retained E O If a company has a net loss, the amount of revenues to be closed will be greater than the amount of expenses to be closed in the closing process

Explanation / Answer

Answer: If a company has a net loss during the current accounting period, then the ending Retained Earnings will be smaller than the beginning Retained Earnings.

Explanation: The net loss is debited to the retained earnings resulting in a smaller ending balance as compared to the beginning balance of retained earnings hence first statement is correct.

The net loss is not debited to common stock but to retained earnings hence second statement is incorrect.

The closing entry will include debits to revenue accounts, credits to expense accounts, and a debit to retained earnings hence the third statement is incorrect.

The amount of revenues to be closed will be smaller than the amount of expenses to be closed in the closing process.

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