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At month end, the Cash Dividends account with a $1,000 debit balance is closed. What is the closing entry?
ADebit Retained Earnings $1,000; credit Cash Dividends $1,000
BDebit Cash Dividends $1,000; credit Retained Earnings $1,000
CDebit Cash $1,000; credit Cash Dividends $1,000
DDebit Cash Dividends $1,000; credit Cash $1,000
Answer & Solution
Correct answer: A. Debit Retained Earnings $1,000; credit Cash Dividends $1,000
1. Cash Dividends has a $1,000 debit balance to be cleared.
2. To zero a debit balance, credit Cash Dividends $1,000.
3. The offsetting debit goes to Retained Earnings, reducing accumulated profit by the dividend.
4. Option A reverses the entry; options C and D involve Cash, which was already credited at payment.
5. Therefore debit Retained Earnings $1,000 and credit Cash Dividends $1,000.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.4 "Balance Sheet Account Transactions", p.39_
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