Which closing entry is used to transfer net income to owner's capital?

Which closing entry is used to transfer net income to owner's capital?

• A. Debit owner's capital; credit income summary
• B. Debit revenue accounts; credit income summary
• C. Debit income summary; credit owner's capital
• D. Debit cash; credit revenue

Answer: (C)

The closing entry that moves net income into the owner's capital uses Income Summary as the middle step. After you close revenue and expense accounts into Income Summary, that account records the period’s net income as a credit balance. To transfer that amount to the owner’s capital, you debit Income Summary (to zero it out) and credit Owner’s Capital (increasing the owner’s equity by the net income). This reflects the earnings boosting the owner’s stake in the business. If there were a net loss, you’d reverse the direction—debit Owner’s Capital and credit Income Summary.

The closing entry that moves net income into the owner's capital uses Income Summary as the middle step. After you close revenue and expense accounts into Income Summary, that account records the period’s net income as a credit balance. To transfer that amount to the owner’s capital, you debit Income Summary (to zero it out) and credit Owner’s Capital (increasing the owner’s equity by the net income). This reflects the earnings boosting the owner’s stake in the business. If there were a net loss, you’d reverse the direction—debit Owner’s Capital and credit Income Summary.