medium · Financial Accounting accounting-cycle-financial-statements

Which statement correctly evaluates this treatment?

1. The placement is correct and the labeling is correct: a $55,000 net income is entered as an Income Statement debit and a Balance Sheet credit, increasing retained earnings.
2. The amount is right but the labels are reversed here: credits exceeding debits in the Income Statement columns actually signal a $55,000 net loss, not net income.
3. The placement is wrong: net income should instead be entered as an Income Statement credit and a Balance Sheet debit, which leaves both pairs of columns misbalanced as a result.
4. The $55,000 figure is correct in the Income Statement columns but should instead appear on the Balance Sheet DEBIT side, since earned income increases total company assets directly.

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