Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts.

Question

Quizplus · Accepted Answer

Net losses should be closed to retained earnings, while paid-in capital accounts should not be affected as they represent contributions from shareholders. Retained earnings, on the other hand, represent the cumulative earnings of the company that have not been paid out as dividends, and are therefore reduced by net losses. Net losses should be closed to retained earnings and any remaining balance should be closed to paid-in capital accounts.

Net Income of a Corporation Should Be Closed to Retained