The Entry to Close the Expense Account(s) Was Entered in Reverse-Income

question 15

Multiple Choice

The entry to close the expense account(s) was entered in reverse-Income Summary was credited and the expense account(s) was/were debited. This error would cause:

• A) assets to be overstated.
• B) liabilities to be overstated.
• C) the Capital account to be understated.
• D) the Capital account to be overstated.

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Definitions:

Capital Account

An account on the balance sheet representing the cumulative amount of the company's earnings, investment, or losses.

Income Summary

An account in the ledger used to summarize revenues and expenses for a period, helping to determine the net income or loss.

Income Summary Account

A temporary ledger account used to summarize a period’s revenues and expenses before transferring the net result to the company's equity account(s).

Net Income

Net income is the total earnings of a company after subtracting all expenses, including taxes, interest, and operating expenses, from its total revenues.