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After closing revenue and expense accounts, Income Summary has a credit balance of $20,000
After closing revenue and expense accounts, Income Summary has a credit balance of $20,000. Which of the following is true?
a. The $20,000 represents a net loss for the period.
b. Cannot answer this question based on the above information.
c. The $20,000 represents a net income for the period.
Expert Solution
Answer: c. The $20,000 represents a net income for the period.
When preparing the closing entries, the temporary accounts which have a normal balance of debit are credit with a corresponding debit to income and expense summary account. On the other hand, accounts with a normal balance of credit is debited with a corresponding credit to income and expense summary account. The balance of the income and expense summary account is treated as net income if it is credit, otherwise, it is a net loss.
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