Which Statement Relating to the Profit or Loss Summary Account

question 13

Multiple Choice

Which statement relating to the profit or loss summary account is incorrect?

• A) The balance in the profit or loss summary account is transferred to the owner's capital account.
• B) The profit or loss summary account is a permanent account.
• C) The profit or loss summary account is established to summarise the balances in the income and expense accounts.
• D) The balance in each income and expense account is transferred to the profit or loss summary account.

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Definitions:

Allocative Efficiency

A state of the economy where resources are allocated in a way that maximizes the utility or satisfaction of consumers.

Consumer Surplus

The discrepancy between the aggregate sum consumers are prepared and can afford to spend on a product or service and the actual total amount they end up paying.

Coase Theorem

A principle that if property rights are clearly defined and transaction costs are low, private bargains will ensure that the market always reaches an efficient outcome regardless of who holds the initial property rights.

Externalities

Economic side effects or consequences that affect uninvolved third parties; can be positive or negative.