Question

With the adjusted trial balance in hand, you see that the debit totals of the real accounts is $18,250 and the credit totals of the real accounts is $14,550. The debit total of the nominal or temporary accounts is $3,475 while the credit total of the nominal or temporary accounts is $7,175. From this you know that

A) net loss is $3,700 for the fiscal period.
B) retained earnings will increase by $3,700 through the closing process.
C) net income is $3,700 for the fiscal period.
D) there is an error in the adjusted trial balance.

Answer 1

The difference between the debit and credit totals of the nominal accounts from the trial balance shows a net income of $3,700 for the fiscal period, indicating that answer C) is correct.

Step-by-step explanation:

When analyzing an adjusted trial balance, we can determine the company's financial performance for the period based on the total debits and credits in the nominal or temporary accounts. A trial balance reflects the closing balances of all ledger accounts on the date of preparation. The difference between the debit and credit totals of the nominal accounts represents either net income or a net loss for the period.

In this scenario, the debit total of the nominal accounts is $3,475, and the credit total is $7,175. To find the net income or loss, we subtract the smaller number from the larger number:

$7,175 (credit total of nominal accounts) - $3,475 (debit total of nominal accounts) = $3,700

Since the credit total is higher, this indicates that the company has a net income of $3,700. Therefore, the correct answer is:

C) net income is $3,700 for the fiscal period.