Income Summary Balance After Closing

After this entry is made all temporary accounts including the income summary account should have a zero balance.

Income summary balance after closing. 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. Close the income summary account. You credit expenses for 225 000 and debit the income summary account for an equal quantity. After all temporary accounts have been transferred to the income summary account the balance in each temporary account will be closed and transferred to the capital account for a sole proprietorship or to retained earnings for a corporation corporation a corporation is a legal entity created by individuals stockholders or shareholders.

Let s assume that company x s income summary has a 2 000 debit balance after closing revenue and expense accounts. After closing revenue and expense accounts income summary has a credit balance of 20 000 a. The debit to income summary should agree to total expenses on the income statement. This transfers the income or loss from an income statement account to a balance sheet account.

After paul s guitar shop prepares its closing entries the income summary account has a balance equal to its net income for the year. Notice the balance in income summary matches the net income calculated on the. If income summary account has credit balance means it is profit and if income summary account reflects debit balance suggested lose by business operation. After passing this entry all expense accounts balance will become zero.

This leaves you with 75 000 net profits in the income summary account. Debit the income summary for that amount and credit the retained earnings account on the balance sheet. The 20 000 represents a net loss for the period. The income summary account holds these balances until final closing entries are made.

This balance is then transferred to the retained earnings account in a journal entry like this. After these two entries the revenue and expense accounts have zero balances. Then the income summary account is zeroed out and transfers its balance to the retained earnings for corporations or capital accounts for partnerships. After closing revenue and expenses with income summary account next step is to close income summary account because it is also nominal account and must close at the end of each account period.

The 20 000 represents a net income for the period before any year end adjustments were made the net income of husky company was. Step 2 closing of expense accounts. Debit to the retained earnings account b. Let s look at the t account for income summary.

Expenses account always have debit balances. Here is the journal entry to close the expense accounts.