The excess credits (or debits) on the income statement are used to decrease (or increase) the equity account.

The statement incorrectly describes the relationship between the results of the income statement and the equity account. An excess of credits on the income statement (revenues greater than expenses) results in net income, which increases the equity account (specifically, the Retained Earnings component). Conversely, an excess of debits (expenses greater than revenues) results in a net loss, which decreases the equity account. The statement reverses this fundamental accounting principle.

The option "True" is incorrect because it posits the exact opposite of the actual accounting process. Net income (excess credits) is added to Retained Earnings, thereby increasing equity. A net loss (excess debits) is subtracted from Retained Earnings, thereby decreasing equity.

1. ACFE. (2023). Fraud Examiners Manual (International ed.). Section 2

"Financial Transactions and Fraud Schemes

" Subsection "Basic Accounting and Auditing Concepts

" Paragraph 2.106. This section explains the accounting cycle

including the closing process where the net balance of temporary accounts (revenues and expenses) is transferred to Retained Earnings

a permanent equity account. It clarifies that net income increases equity and a net loss decreases it.

2. Weygandt

J. J.

Kimmel

P. D.

& Kieso

D. E. (2021). Financial Accounting (11th ed.). Wiley. Chapter 4

"Completing the Accounting Cycle

" Section on "Preparing Closing Entries." This university-level textbook explicitly demonstrates that the closing entry for net income involves debiting the Income Summary account and crediting the Retained Earnings account

thus increasing the balance of the equity account.

3. MIT OpenCourseWare. (2004). 15.511 Financial Accounting

Fall 2004. Lecture Notes

"Lecture 2: Measuring and Reporting Financial Activity

" pp. 12-14. This courseware illustrates the articulation of financial statements

showing how net income calculated on the income statement flows directly to the statement of retained earnings

causing an increase in the ending retained earnings balance

which is a component of stockholders' equity on the balance sheet.