Journal Entry For Closing Income Summary Account

Closing entry is to transfer all revenue and expense account totals at the end of an accounting period to an income summary account which effectively results in the net income or loss for the period being the account balance in the income summaryretained.

Journal entry for closing income summary account. After the expense and revenue accounts are closed the company must make an entry in the general journal to close the income summary account. Closing entry types temporary accounts can either be closed directly to the retained earnings account or to an intermediate account called the income summary account the income summary account is then closed to the retained earnings account. As the drawings account is a contra equity account and not an expense account it is closed to the capital account and not the income summary or retained earnings account. 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.

Close income summary account at this point you have closed the revenue and expense accounts into income summary. 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. It enables you to determine net income or retained earnings for the current accounting period and it resets the account balance to zero so you. After passing the above journal entry of income summary account will be prepared which is as below.

The closing entry process accomplishes two tasks. If income summary account has credit balance means it is profit and if income summary account reflects debit balance suggested lose by business operation. Closing income summary account 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. 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.

Although the drawings account is not an income statement account it is still classified as a temporary account and needs a closing journal entry to zero the balance for the next accounting period. 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 balance in income summary now represents 37 100 credit 28 010 debit or 9 090 credit balance does that number.