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Into which account are the balances of revenue and expense accounts transferred during closing?
ACash
BAccounts Payable
CShare Capital
DRetained Earnings
Answer & Solution
Correct answer: D. Retained Earnings
1. Closing entries transfer the revenue and expense balances out of the temporary accounts.
2. Profit is moved into Retained Earnings, where accumulated profit is stored.
3. Since $\text{Revenue} - \text{Expenses} = \text{Net Income}$, moving both balances moves the net income.
4. The balances are not closed to Cash (A), Share Capital (C), or Accounts Payable (D).
5. Therefore they are transferred to Retained Earnings.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.4.4 "Closing Entries", p.24_
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