Income Summary General Journal

This transfers the income or loss from an income statement account to a balance sheet account.

Income summary general journal. The income summary account is a temporary account used to store income statement account balances revenue and expense accounts during the closing entry step of the accounting cycle. A journal entry is the first step of the accounting or book keeping process. Let s look at the t account for income summary. In a manual accounting system the closing entries will result in the following amounts in income summary.

After these two entries the revenue and expense accounts have zero balances. 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 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. Other names used for general journal are journal book. The income summary is very temporary since it has a zero balance throughout the year until the year end closing entries are made.

A credit amount for the total amount of the general ledger. This transfer is accomplished by a journal entry debiting the revenue accounts in an amount equal to its credit balance with an offsetting credit to the income summary account. In other words the income summary account is simply a placeholder for account balances at the end of the accounting period while closing entries are being made. The credit portion transfers to the former balances of the revenue accounts into the income summary account.

Income summary account is a temporary account used in the closing stage of the accounting cycle to compile all income and expense balances and determine net income or net loss for the period. What is income summary. Next the balance resulting from the closing entries will be moved to retained earnings if a corporation or the owner s capital account if a sole proprietorship. This is the only time that the income summary account is used.

For the rest of the year the income summary account maintains a zero balance. In this step all the accounting transactions are recorded in general journal in a chronological order the general journal is maintained essentially on the concept of double entry system of accounting where each transaction affects at least two accounts. After the expense and revenue accounts are closed the company must make an entry in the general journal to close the income summary account. Here is the journal entry to close the expense accounts.

General journal is an initial record keeping that records all the transactions except for the ones which are recorded in a specialty journal like cash journal purchase journal etc. The debit to income summary should agree to total expenses on the income statement. Notice the balance in income summary matches the net income calculated on the. A fiscal year fy does not necessarily follow the calendar year.

Example of income summary account. 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. As you can see the income and expense accounts are transferred to the. The debit portion of this entry returns the balances of the revenue accounts to zero.

Here are some example closing entries.