The entry to close the expense account(s) was entered in reverse

Question

The entry to close the expense account(s) was entered in reverse - Income Summary was credited and the expense account(s) was/were debited. This error would cause
A) assets to be overstated.
B) liabilities to be overstated.
C) Capital account to be understated.
D) Capital account to be overstated.

Quizplus · Accepted Answer

The entry to close the expense account(s) should credit the expense account(s) and debit the Income Summary account. However, the entry was entered in reverse, which means that Income Summary was credited (which is an increase to equity) and the expense account(s) was/were debited (which is a decrease in equity). This error would cause the Capital account to be overstated, as the net income from the Income Summary account would be credited directly to equity instead of going through the proper closing entries.