At year-end, XYZ Corp reports: Sales Revenue $320,000; Cost of Goods Sold $180,000; Operating Expenses $70,000; Dividends $20,000. Prepare the closing entries and determine the ending balance of Retained Earnings if the opening balance was $50,000.

Answer

Net income = $320,000 − $180,000 − $70,000 = $70,000**. Ending Retained Earnings = %%DOLLAR%%50,000 + %%DOLLAR%%70,000 − %%DOLLAR%%20,000 = **$100,000.

Explanation

Closing entries zero out temporary accounts (revenues, expenses, dividends) and transfer the period's results to Retained Earnings.

Step 1 — Close revenue accounts to Income Summary

Date	Account	Debit	Credit
Dec 31	Sales Revenue	320,000
	Income Summary		320,000

Step 2 — Close expense accounts to Income Summary

Date	Account	Debit	Credit
Dec 31	Income Summary	250,000
	Cost of Goods Sold		180,000
	Operating Expenses		70,000

Step 3 — Close Income Summary to Retained Earnings

After steps 1–2, Income Summary has a credit balance of $70,000 — that's net income.

Date	Account	Debit	Credit
Dec 31	Income Summary	70,000
	Retained Earnings		70,000

Step 4 — Close Dividends to Retained Earnings

Dividends are a contra-equity account and reduce Retained Earnings directly (not income).

Date	Account	Debit	Credit
Dec 31	Retained Earnings	20,000
	Dividends		20,000

Final Retained Earnings

Ending RE = Opening RE + Net Income − Dividends = $50,000 + $70,000 − $20,000 = $100,000

After closing, all temporary accounts have a $0 balance and the next period starts fresh.

Skills You Achive

closing entries retained earnings income statement