Net loss is recorded in the debit column of the income statement on a worksheet, and its effect flows to the balance sheet through equity (reducing retained earnings). In practical terms:
- On the worksheet: net loss increases expenses (debit) and decreases net income, so the net loss figure is placed in the debit column of the income statement section. This aligns with the rule that expenses and losses are recorded on the debit side.
- On the balance sheet: since a net loss reduces owner’s/ shareholders’ equity, the corresponding reduction is reflected in the retained earnings (or accumulated deficit) section, which carries a credit balance that is decreased by the net loss. The net loss effectively lowers equity, and is tracked via a debit entry in the equity area (retained earnings) of the balance sheet.
Key takeaway:
- Net loss placement on the worksheet: debit column in the income statement section.
- Net loss impact on the balance sheet: reduces retained earnings (equity), typically shown as a debit adjustment to retained earnings in the balance sheet area.
If you’re working from a specific 10-column or multi-column worksheet format, the exact row/column labels may vary (e.g., “Income Statement” columns vs “Balance Sheet” columns), but the debit treatment for net loss and the resultant reduction in equity remain consistent.
