The entry to close Income Summary (net loss) was entered in reverse-Income Summary was debited and Capital was credited. This error will cause
A) Income Summary to have a credit balance.
B) Income Summary to have a debit balance.
C) the assets to be overstated.
D) the liabilities to be overstated.

Question

Quizplus · Accepted Answer

Closing entries are meant to transfer temporary account balances to the permanent capital account. In the case of a net loss, Income Summary will have a debit balance. Therefore, to close Income Summary, it should be credited and the Capital account should be debited. The entry given in the question is entered in reverse, which would result in Income Summary having a debit balance instead of being closed to Capital.

The Entry to Close Income Summary (Net Loss) Was Entered