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The second entry requires expense accounts close to the Income Summary account. To get a zero balance in an expense account, the entry will show a credit to expenses and a debit to Income Summary. Printing Plus has $100 of supplies expense, $75 of depreciation expense–equipment, define the income summary account $5,100 of salaries expense, and $300 of utility expense, each with a debit balance on the adjusted trial balance. The closing entry will credit Supplies Expense, Depreciation Expense–Equipment, Salaries Expense, and Utility Expense, and debit Income Summary.

The balance in Income Summary is the same figure as what is reported on Printing Plus’s Income Statement. The income summary account is an intermediary between revenues and expenses, and the Retained Earnings account. It stores all of the closing information for revenues and expenses, resulting in a “summary” of income or loss for the period.

Profit and income Statement

Now that Paul’s books are completely closed for the year, he can prepare the post closing trial balance and reopen his books with reversing entries in the next steps of the accounting cycle. Once a company determines whether it has sustained a loss or earned a profit, the results from the final account are typically transferred into retained earnings on the balance sheet. There are three steps to preparing this form, all relatively simple. These steps revolve around the revenue and expenses of the company.

When you compare the retained earnings ledger (T-account) to the statement of retained earnings, the figures must match. It is important to understand retained earnings is not closed out, it is only updated. Retained Earnings is the only account that appears in the closing entries that does not close. You should recall from your previous material that retained earnings are the earnings retained by the company over time—not cash flow but earnings.

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You can either close these accounts directly to the retained earnings account or close them to the income summary account. Modern-day accounting software typically does the process of automatically debiting or crediting revenue and expense balances once the accounting period ends. An income summary is an account that is temporary and nets all the temporary accounts for a business upon closing them at the end of the given accounting period. Only income statement accounts help us summarize income, so only income statement accounts should go into income summary. What is the current book value of your electronics, car, and furniture?

Closing temporary accounts to the income summary account requires an extra step. However, it also gives an audit record of the year’s revenues, expenses, and net income. Thus, accumulating revenue and spending totals before the resulting profit or loss is passed through to the retained earnings account.

How do you record income summary account?

To complete the income summary account, the last step to preparing it must be one column for credit and another for debit. The credit side will be the company’s total income, and the debit side is the company’s total expenditure. After the accounts are closed, the income summary is then transferred to the capital account of the owner and then closed.

• An income statement’s objective is to compile all of the account information on revenues and expenses recorded during an accounting period and display it in standard income-statement format.
• Account balances of income-statement accounts, specifically revenues and costs, are closed and reset to zero at the end of an accounting period to prepare them for transaction recording in the next month.
• 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.
• Your car, electronics, and furniture did not suddenly lose all their value, and unfortunately, you still have outstanding debt.
• You can either close these accounts directly to the retained earnings account or close them to the income summary account.