Income Summary Net Debit

The income statement is used for recording expenses and revenues in one sheet.

Income summary net debit. The income summary account is a temporary account used to close all income and expense accounts at the end of an accounting period. Conversely if the income summary account has a net debit balance i e. You debit revenue for 300 000 and credit that money to the income summary account. Thus shifting revenue out of the income statement means debiting the revenue account for the total amount of revenue recorded in the period and crediting the income summary account.

Therefore it is also called revenue expense. Let s look at the t account for income summary. The net amount transferred into the income summary account equals the net profit or net loss that the business incurred during the period. Income summary on the other hand is for closing records of expenses and revenues for a given.

Next if the income summary has a credit balance the amount is the company s net income. Debit and credit when the accounts in the income statement are transferred the values are debited from the accounts and then credited to the income summary account. After these two entries the revenue and expense accounts have zero balances. Basically the income summary account is nothing more than a placeholder for the income and expense accounts at the end of the period.

When the sum of the debit side is greater than the sum of the credit side it represents a net loss. An income summary account is effectively a t account of the income statement. A debit amount for the total amount of the general ledger income statement accounts that had debit balances. If the income.

You credit expenses for 225 000 and debit the income summary account for an equal quantity. Closing temporary accounts to the income summary account does take an extra step but it also provides and an audit trail showing the revenues expenses and net income for the year. Since it is a temporary ledger account it does not appear on any financial statement. It is a summary of income and expenses arising from operating and non operating activity.

Once the temporary accounts are closed to the income summary account the balances are held there until final closing entries are made. We will also close these accounts to income summary. Debit the income summary for that amount and credit the retained earnings account on the balance. If the net balance of income summary is a credit balance it means the company has made a profit for that year or if the net balance is a debit balance it means the company has made a loss for that year.

Here is the journal entry to close the expense accounts.