Income Summary Closing Entries

Using income summary in closing entries.

Income summary closing entries. At the end of the year closing entries are used to combine revenues and expenses with the retained earnings equity account. Income summary entries are a tool for closing out accounts at the end of a month quarter or year. 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. It is done by debiting various revenue accounts and crediting income summary account.

At this point you have closed the revenue and expense accounts into income summary. The balance in income summary now represents 37 100 credit 28 010 debit or 9 090 credit balance does that number seem familiar. Let us now summarize the process of closing the accounts. The preparation of closing entries is a simple four step process which is briefly explained below.

It should income summary should match net income from the income statement. Close income summary account. Summary of the closing entries. The process of preparing closing entries.

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. Transfer the balances of all revenue accounts to income summary account. Step 1 closing the revenue accounts. The income summary account is simply a placeholder for account balances at the end of the accounting period while closing entries are being made.

Close the various revenue accounts by transferring their balances into the income summary account. The net result of income less expenses becomes retained earnings. The income summary account is an account that receives all the temporary accounts of a business upon closing them at the end of every accounting period. 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.

This means that the value of each account in the income statement is debited from the temporary accounts and then credited as one value to the income summary account. The income summary account is a temporary account used to store income statement account balances during the closing entry step of the accounting cycle. You take your net income from various sources and transfer them to the income summary account.