Assume that an organization's operations result in a net profit for the year.When the books are closed,what is the accounting effect of the journal entry that closes out the net profit?
A)it is added to the cash balance
B)it is subtracted from the cash balance
C)it is added to the opening balance of owner's equity
D)it is subtracted from the liabilities

Question

Quizplus · Accepted Answer

The journal entry that closes out the net profit involves transferring the net profit amount to the owner's equity account. Specifically, it is added to the opening balance of owner's equity, increasing the overall equity in the organization. This reflects the fact that the profits generated during the year ultimately belong to the owners of the business. Option A is incorrect because the net profit is not necessarily added directly to the cash balance, although it may eventually be used for investing or other purposes. Option B is also incorrect for the same reason, as the net profit is not subtracted from the cash balance. Option D is not relevant to the closing entry for net profit, as it deals with liabilities rather than equity.

Assume That an Organization's Operations Result in a Net Profit