Closing Income Summary Account Journal Entry

Closing temporary accounts to the company s income summary account allows the company to begin the next accounting cycle with a zero balance in the revenue and expense accounts.

Closing income summary account journal entry. To close income summary debit the account for 61 and credit the owner s capital account for the same amount. The debit to income summary should agree to total expenses on the income statement. Temporary accounts can either be closed directly to the retained earnings account or to an intermediate account called the income summary account. If income summary account has a credit balance it means the business has earned a profit during the period which causes an increase in retained earnings.

We will also close these accounts to income summary. Both ways have their advantages. In partnerships a compound entry transfers each partner s share of net income or loss to their own capital. Step 2 closing of expense accounts.

The income summary account is then closed to the retained earnings account. At the end of the accounting period all the expenses accounts will be closed by transferring the debit to income summary and this will be done by crediting the expenses account and debiting the income summary account. After the expense and revenue accounts are closed the company must make an entry in the general journal to close the income summary account. The income summary account is in itself a temporary account and an additional closing journal entry is made to zero the account at the end of the accounting period and transfer the balance the net income for the period to the retained earnings account as before.

Expense accounts have debit balances. Here is the journal entry to close the expense accounts. The journal entry to close the income summary account is made as follows. After passing this entry all expense accounts balance will become zero.

Expenses account always have debit balances. The income summary account is a temporary account used to store income statement account balances revenue and expense accounts during the closing entry step of the accounting cycle. The income summary account s 61 credit balance equals the company s net income for the month of april. Therefore the income summary account is closed by debiting income summary account and crediting retained earnings.

To close means to make the balance zero. Closing an expense account means transferring its debit balance to the income summary account the journal entry to close an expense account therefore consists of a credit to the expense account in an amount equal to its debit balance with an offsetting debit to the income summary. In other words the income summary account is simply a placeholder for account balances at the end of the accounting period while closing entries are being made. Let s look at the t account for income summary.

We use a new temporary closing account called income summary to store the closing items until we get close income summary into retained earnings.