Net income is entered onto which column(s) of a worksheet?
A. Adjusted trial balance debit column
B. Income statement debit and balance sheet credit
C. Income statement debit and balance sheet debit
D. Adjusted trial balance credit and income statement credit
The correct answer and explanation is :
Correct Answer: C. Income statement debit and balance sheet debit
Explanation:
To understand why Option C is correct, it’s essential to know how a worksheet is used in accounting, particularly in the preparation of financial statements. A worksheet is a tool accountants use to ensure accuracy when preparing adjusting entries and financial statements. It typically consists of the following columns:
- Trial Balance (debit and credit)
- Adjustments (debit and credit)
- Adjusted Trial Balance (debit and credit)
- Income Statement (debit and credit)
- Balance Sheet (debit and credit)
How Net Income Appears in the Worksheet:
Net income (or net loss) is the result of subtracting total expenses from total revenues:
Net Income = Revenues – Expenses
When preparing a worksheet:
- Revenues are entered in the Income Statement credit column
- Expenses are entered in the Income Statement debit column
If total credits (revenues) exceed total debits (expenses) in the income statement columns, the company has a net income. This difference must then be entered on the debit side of the Income Statement to balance the columns.
To ensure the worksheet balances, the same amount (net income) is also entered on the credit side of the Balance Sheet column, because it increases owner’s equity (specifically, retained earnings).
However, Option C says “Income statement debit and balance sheet debit”, which reflects the situation if there is a net loss, not net income.
Let’s re-evaluate based on that:
Corrected Answer:
The question asks “Net income is entered onto which column(s) of a worksheet?”
If it is net income, it should appear as:
- Debit side of the Income Statement (to balance excess credits/revenue)
- Credit side of the Balance Sheet (to increase equity)
Thus, the correct answer is actually:
B. Income statement debit and balance sheet credit