Income Summary Account Closing Entries

Expense accounts have debit balances.

Income summary account closing entries. Rather than closing the revenue and expense accounts directly to retained earnings and possibly missing something by accident we use an account called income summary to close these accounts. The income summary account is a temporary account used to store income statement account balances during the closing entry step of the accounting cycle. The income summary account is only used during the year end closing process it facilitates the transfer of balances away from the temporary accounts and into the permanent accounts. A fiscal year fy.

The balance in income summary now represents 37 100 credit 28 010 debit or 9 090 credit balance does that number seem familiar. Income summary is a temporary account in which all the closing entries of revenue and expenses accounts are netted at the end of the accounting period and the resulting balance is considered as profit or loss. Both ways have their advantages. At the end of the year closing entries are used to combine revenues and expenses with the retained earnings equity account.

The income summary account would have a credit balance if the total of the balances of all revenue accounts is greater than the total of the balances. Income summary allows us to ensure that all revenue and expense accounts have been closed. 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. Closing for expense accounts.

Close income summary account. Using income summary in closing entries. The total of the income summary account after the all temporary accounts have been close should be equal to the net income for. At this point you have closed the revenue and expense accounts into income summary.

It should income summary should match net income from the income statement. The income summary account is then closed to the retained earnings account. After making closing entries in step 1 and step 2 the income summary account shows a credit or debit balance which is transferred to retained earnings account to close the income summary account. The income summary account is simply a placeholder for account balances at the end of the accounting period while closing entries are being made.

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.