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On 30 June, Fees Earned has a $2,100 credit balance and Rent Expense has a $500 debit balance. Which closing entry correctly zeros out Fees Earned?
ADebit Retained Earnings $2,100; credit Fees Earned $2,100
BDebit Fees Earned $500; credit Retained Earnings $500
CDebit Fees Earned $2,100; credit Retained Earnings $2,100
DDebit Cash $2,100; credit Fees Earned $2,100
Answer & Solution
Correct answer: C. Debit Fees Earned $2,100; credit Retained Earnings $2,100
1. Fees Earned carries a $2,100 credit balance.
2. To zero a credit balance, debit the account for that same amount.
3. The offsetting credit goes to Retained Earnings, increasing accumulated profit.
4. Option A reverses the entry; option C uses the wrong amount; option D involves Cash, not a closing entry.
5. Therefore debit Fees Earned $2,100 and credit Retained Earnings $2,100.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.4.4 "Closing Entries", p.25_
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