I am providing you with a response to a question I asked. The individual did not explain throughly enough for me. Please clarify. I am going to paste the answer I received and below that I will ask the questions I need clarification on. This question was regarding the Income Statement.
" It summarizes revenues (what you earned) and expenses (what you spent) to arrive at net surplus or deficit (what's left from your earnings after subtracting what you spent). If the period results in a net surplus, this is added to retained surplus and your net worth is increased. The income statement account is a temporary account used with closing entries.
Closing Entries transfer the balances of all temporary accounts (Revenue, Expenses and dividends) to the balance of retained earnings amount.
All Revenue accounts have credit balances. To transfer these balances to the retained earning accounts, we debit each of these revenue accounts for its balance and credit retained earnings for the total."
1) What happens if the revenues do not result in a surplus? What happens to the RE in that instance? Is RE the only account affected by the transactions on the Income Statement?
2) Do all temporary accounts affect RE only? Do the other Financial Statements such as Statement of RE, Cash Flow, and Blance Sheet have temporary accounts? Are any of these statments temporary statments like the Income Statement?
3) Are revenue, expenses, and dividends all credit balances? If so why are they debited to RE? Also why would dividents appear on the Income Statement when there is a Statement of Retained Earnings that show Dividends.
4) I did not understand this last sentence at all. I am pasting it here. Would you please clarify in detail what was meant by this answer?
"To transfer these balances to the retained earning accounts, we debit each of these revenue accounts for its balance and credit retained earnings for the total."