Income Summary Equity Account

In the closing stage balances in all income accounts are transferred to the income summary account by debiting.

Income summary equity account. 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. To close income summary we will debit the account. An income summary account is a temporary accounting document used specifically at the end of an accounting period to balance all accounts. Equity is defined as the owner s interest in the company assets.

This account is a temporary equity account that does not appear on the trial balance or any of the financial statements. It is a helper account aiding us in the closing process. 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. Definition of income summary account.

Assets real accounts and liabilities and owner equity personal accounts are permanent accounts at the end of financial period temporary accounts revenue and expenses are closing by opening a new temporary account called income summary account. Computerized accounting systems may close the temporary accounts without recording the amounts in an income summary account the income summary is very temporary since it has a zero. What is an equity account. This is why equity is often referred to as net assets or assets minus liabilities.

It is also useful in that it transfers all of the money in revenue and expense accounts into the retained earnings account. Fiscal year fy a fiscal year fy is a 12 month or 52 week period of time used by governments and businesses for accounting purposes to formulate annual financial reports. In other words upon liquidation after all the liabilities are paid off the shareholders own the remaining assets. The income summary account is a temporary account used to close all income and expense accounts at the end of an accounting period.

Basically the income summary account is nothing more than a placeholder for the income and expense accounts at the end of the period. By doing this the income summary account essentially resets the books for the start of a new accounting period. The net balance of the income summary account is closed to the retained earnings account. 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.

The net amount transferred into the income summary account equals the net profit or net loss that the business incurred during the period.