What is Income Summary Account

Income Summary Account In Accounting

Income Summary Account is a Temporary Account which is prepared to close temporary accounts i.e. Revenues and Expenses when we prepare Closing Journal Entries at the end of the accounting period. All the revenues and expenses accounts are transferred to this account from Income Statement or Profit And Loss Account.

Income summary account is prepared to close temporary accounts at the end of the accounting period. The Net income / Net profit or Net Loss for the accounting period calculated under this account is always equal to the net income or net loss shown in the income statement.

The journal entries for closing revenues and expenses accounts are shown below:

For Closing Revenues Accounts

                                                 Revenues a/c   XXX

                                                                      Income Summary a/c   XXX

                                            (Revenues Transferred To Income Summary Account)

From the above entry, it is clear that we debit revenues accounts to close these as these are credit in usual.

For Closing Expenses Accounts

                            Income Summary Account a/c   XXX

                                                                             Expenses a/c   XXX

                                               (Expenses Are Closed To Income Summary Account)

The net profit / net income or net loss calculated under this account is transferred from income summary account to Retained Earnings Account, so we pass the following entry as shown below:

In case of net profit / net income

                                  Retained Earnings a/c   XXX

                                                                       Net Profit a/c   XXX

                                           (Net Profit Transferred To Retained Earnings Account)

In case of net loss

                                             Net Loss a/c   XXX

                                                                      Retained Earnings a/c   XXX

                                        (Net Loss Transferred To Retained Earnings Account)

Both net profit and net loss are transferred from income summary account to retained earning account as these are used to calculate closing retained earnings for the period.

Income summary account does not appear on any Financial Statement as it is a temporary account to sum up the revenues and expenses accounts in order to find out net profit / net income or net loss for the accounting period.