What happens if the Income Statement Credit column exceeds the Debit column?

• A. It results in a net loss.
• B. It results in net income, not a net loss.
• C. There is no effect on net income.
• D. The accounting records are in error and must be reversed.

Answer: (B)

Revenues and gains carry credits while expenses carry debits on the income statement. When you total up all credits (revenues and gains) and all debits (expenses), the side that is larger determines net income or net loss. If the credit side exceeds the debit side, revenues exceed expenses, producing net income. This increases the company’s equity (retained earnings) when closed. So the outcome is net income, not a net loss. The notion of no effect on net income isn’t correct because a credit surplus to debits changes the bottom line. It isn’t an automatic error requiring reversal; it simply reflects profitability for the period.