Question

Before calculating the profit for the period, the totals of the income statement columns on the worksheet are: total debits $70 000 and total credits $60 000. The amount of the profit or loss is:

Select one:

a. $10 000 loss

b. $60 000 profit

c. $10 000 profit

d. $70 000 profit

Answer 1

The correct answer is Option a. $10,000 loss.

Explanation: The difference between the total income and the expenses is known as the profit or loss. If the income is greater than the expenses, the resulting difference is known as profit and if the expenses are greater than the income, the resuting difference is known as the loss.

The income and the expenses are recorded in the income statement. The expenses are recorded on the debit side of the income statement as the balance of expense account is debit balance and while transferring the expense account to the income statement, income statement is debited and the expense account is credited.

The incomes are recorded on the credit side of the income statement as the balance of income account is credit balance and while transferring the income account to the income statement, income statement is credited and the income account is debited.

In the given question it is given that the total debits in the income statement is $70,000 which means total expense is $70,000 and the total credits in the income statement is $60,000 which means total income is $60,000. Therefore, the expense is $10,000 more than the income which represents the loss.