CEVAP:

To understand the retained earnings account, recall the closing process at the end of the accounting period. A corporation closes its revenue accounts and expense accounts. To close all the revenue accounts, they should be debited while Income Summary account is credited with the total amount of the revenues. Thus, the total amount of revenues for an accounting period could be seen on the credit side of the Income Summary account. Contrarily, to close all the expense accounts they should be credited while the Income Summary account is debited with the total amount of the expenses. Thus, the total amount of expenses for an accounting period could be seen on the debit side of the Income Summary account. In the end, the financial result of the corporation (net income or net loss) for a specific accounting period could be seen on the balance of the Income Summary account. The balance of the Income Summary account is close to the Retained Earnings account. Thus, it means a net income increases the retained earnings but net loss decreases the retained earnings.