Question

After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $5,700 debit balance. This result implies that Cleaver earned a net income of $5,700.
a) true
b) false

Answer 1

Answer: False

Explanation:

The Income Summary Account contains the ending accounts of all revenue and expense accounts in a company with the net amount transferred to the account being the company's net profit (loss).

Income as an equity item is credited when it increases and debited when it decreases meaning that a debit represents a net loss. Cleaver Auto Services having a $5,700 debit balance in their Income summary account means that they have made losses of $5,700 not income.