Question

Imagine there is a Net loss in the business. Net loss is transferred from the ______ to ______.

Options

• Profit and Loss Account debit side, Balance Sheet assets side

• Profit and Loss Account credit side, Balance Sheet liability side

• Balance Sheet liability side, Profit and Loss Account credit side

• Trading Account, Balance Sheet asset side

Answer 1

Imagine there is a Net loss in the business. Net loss is transferred from the Profit and Loss Account credit side to Balance Sheet liability side.

Explanation:

Net Loss occurs when expenses exceed income. To balance the Profit and Loss Account, it is recorded on the credit side. It is then transferred to the liability side of the Balance Sheet, where it is deducted from Capital because it reduces the owner’s investment.