At the End of the Accounting Period, but Before Closing

question 57

Multiple Choice

At the end of the accounting period, but before closing entries are made, Harry, the proprietor of Harry's Bar and Grill, has a debit balance of $24,500 in his drawing account and a credit balance of $72,300 in his capital account. Which of the following statements is true?

• A) Harry's net income was $47,800.
• B) Harry will debit the drawing account for $24,500 and credit the capital account for $24,500.
• C) Harry will debit the capital account for $24,500 and credit the drawing account for $24,500.
• D) Harry's retained earnings account was $47,800.

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Definitions:

Annual Net Cash Flow

The difference between a company's total cash inflows and outflows over one fiscal year, reflecting its ability to generate cash.

Average Rate Of Return

A method of evaluating a capital investment proposal that focuses on the expected profitability of the investment; computed as average annual income divided by average investment. Also referred to as accounting rate of return.

Average Income

The mean amount of earnings generated over a specified period of time, taking into account all revenue sources.

Cash Payback Method

The cash payback method is a capital budgeting method that estimates the time required for a project to generate cash flows sufficient to recoup the initial investment.