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  Income Summary Account is also called clearing account revenue and expense summary i n accounting as it is, actually, a temporary accou nt prepared to transfer revenues and expenses accounts from Income Statement at the end of the accounting period. It provides a summary of both revenues and expenses for the accounting period, so it is also called a revenue and expense summary account. The purpose of income summary account is to close revenues and expenses account and to calculate the net profit or net income and that net income must be equal to net income of Income Statement. As i ncome summary account is prepared to transfer revenues and expenses accounts to Retained Earnings Account at the end of t h e fiscal period, so that is why it is called a clearing account.

Closing Entries are recorded at t he e nd of t he e nd of t he accou nting period after all t he Financial Statements are prepared. T his closi ng entry process is necessary in order to c heck fi nancial performance and position of t he b usi ness after closing all of t he temporary accou nts. T here are four (4) steps of closi ng entry process: 1. Closing Expenses Accounts To Income Summary Account All t he expe n ses accou nts and losses accounts or the debit side of income summary account is closed to Income Summary Account. 2.  Closing Revenues Accounts To Income Summary Account All the revenues accounts and gains accounts or the credit side of income summary account is closed by debited revenues account and credited to income summary account. 3. Income Summary Account is closed to retained earnings account Income summary account, b ei ng a temporary account, is also closed to retained earnings account. 4. Dividend Account or Drawings Account Is Also Closed T...

If a company fails to account for Accrued Expenses or Outstanding Expenses or Expenses Payab le , the n t he value of expe nses in Income Statement decreases and as a result, t he net income / net profit for the period is increased or overstated. T he effect of this non recording adjusting entry of accrued expenses is t hat the lia b ilities side decreases so total lia b ilities o n b ala nce decreased or understated. In fact, we record t h e following accrued expenses adjusting entry in t he b ooks of accou nts:                                                              Expenses a/c  XXX                                                                   ...

If a company fails to record or adjust Accrued Revenues , then due to non recording of revenues account in Income Statement, the net income or net profit decreased or understated. On the hand, the value of assets in balance sheet is also understated. Actually, as we did not record t h e following adjusting entry of accrued revenues as s how n b elow:                                            Accrued Revenues a/c  XXX                                                                                Revenues a/c  XXX                                           ...

  Real Accounts include Assets and Liabilities which are not closed at the end of the accounting period. Real accounts are also called  Permanent Accounts . These are also considered as balance Sheet Accounts as these are transferred to balance sheet. Personal Accounts are related with living persons or natural persons, artificial persons and representative persons. Examples include Mr. A, Owner’s Equity Account, Shareholder Equity Account, ABC Company Account, A&S Company Account, Outstanding Rent Account, Outstanding Salary Account, Prepaid Rent, etc. Personal accounts are also called B ala nce S heet Accou nts as t hese are tra nsferred to b ala nce s heet o n t he specified date. N ominal Accounts are Temporary Accounts w hich are closed at the e nd of t he accou nting period as t hese types of accou nts does not have a ny ledger’s b ala nces. T hese accou nts include Revenues, Expenses, Gains, Losses.  Nominal accounts are also called Income State...

Temporary Account Is Also Called What In Accounting? Another name for Temporary Account s   is Nominal Account as this shows those accounts (Revenues and Expenses, Gains and Losses) which are closed at the end of the accounting period. Examples of these accounts are sales revenue account, commission revenue account, purchases account, rent expenses, sundry expense account, salaries expense account, etc. Actually, these types of accounts have no balances, so  these are closed to Income Summary Account , which is also a temporary account and this temporary account is finally closed to Retained Earnings Account. Temporary accounts are recorded for a specific accounting period i.e., for current accounting period in which theses are incurred or earned by the business. These are incurred or earned for the profits which can be used to run the business, stabilize it, grow it and for other purposes.

In  Balance Sheet Accounts , permanent accounts or real accounts are studied which are not closed at the end of the accounting period while Income Statement Accounts are those accounts which are not closed at the end of the accounting period, unless the business goes into liquidation, as these accounts are temporary accounts or nominal accounts. Examples of balance sheet accounts are Cash, Accounts Receivable, Inventory, Accounts Payable, Furniture & Fixture, Loans, Owner’s Equity or Equity, etc., w hile examples lists of i ncome statements accounts include Sales, Cost of Sales, Fees Earned, Rent Expenses, Salaries Expenses, etc. Basically 3 types of accou nts i.e., Assets, Liab ilities a nd Owner’s Equity or Equity are included in b ala nce s heet accou nts w hile 4 types of accou nts Revenues, Gains, Expenses, losses are recorded in income statement accounts.

Here are some important  Income Statement Accounts lists or examples which are recorded in Income Statement include revenues and expenses including both direct and indirect. Revenues Accounts Lists Sales,  Fees Earned,  Commission Earned, Service Revenue Received, etc. Expenses Accounts Lists Cost of Sales, Wages Expense, Petrol Expenses, Fuel Expenses, Rent Expenses, Salaries Expenses, Advertising Expenses, Office Supplies Expenses, Depreciation Expense, Bad Debts Expense, Doubtful Debts / Uncollectible Accounts Expense, Fees Paid, Accounting Fees, Auditing Fees, Repairs and Maintenance Expense, Sundry Expenses, Marketing Expenses, etc. So, all the temporary accounts (Revenues & Expenses) which are closed during the period are recorded in income statement or statement of comprehensive income or profit and loss account.

I ncome Statement Accounts are closed at t he e nd of t he accou nting period unlike Balance Sheet Accounts . I ncome statement accounts are temporary accounts havi ng no b ala nces at t he e nd of t he accou nting period. I ncome Statement Lists / Examples include all revenues and expenses suc h as Sales, Purchases, Re nt Expenses, Wages Expenses, Salaries Expenses, Advertising Expenses, Fees Paid Depreciation Expenses, etc. Income Statement accounts are also called nominal or temporary accounts as t hese are closed at the e nd of t he accou nting period and not transferred to b ala nce s heet as these accou nts does not have ledger’s b ala nces.

  I ncome Summary Account is not an Equity Account as it is a temporary account w hich is prepared to make a summary of reve nues and expenses and also to calculate the differe nce of revenues and expenses for t he period. A n Owner’s Equity or Equity account is prepared to record transactions related wit h the ow ners of t he b usi ness and suc h tra nsactions are also related with b usi ness matters. All contrib utio n of t he ow ners towards t he b usi ness is considered as an internal liab ility of th e b usi ness. I ncome summary account is closed to Retained Earnings b ut equity accou nt is a permanent account and not closed unless t h e b usi ness is closed. Equity accou nt is s how n on b ala nce s h eet w hile i ncome summary account does not appear on any financial statement as it is temporarily prepared after all t he fi nancial statements are prepared in order to make summary of all of t h e revenues and expenses transferred to Retained Earnings Accoun...

  I ncome Summary Account is not a real account or a permanent account as it is closed to Income Statement w hile real accou nts are transferred to b ala nce s heet. I ncome summary account is also not a personal account as it is not related wit h natural or living persons. Yes, I ncome Summary is a N ominal Account as it is a temporary account w hich is fi nally closed to Income Statement. So, i ncome summary account is a nominal account and not a real account and a personal account.

  Income Summary Account is closed to Retained Earnings Account . In case of N et Loss we need to credit it and deb it retai ned earnings account as income summary account has a de b it b ala nce so to close it we need to credit it and deb it retai ned earnings account in order to transfer net loss from income summary account to retained earnings account. The journal entry to close income summary when there is a net loss is:                                   Retained Earnings a/c  XXX                                                                        Income Summary a/c  XXX   (Income Summary Accou n t Closed to Retai n ed Ear n i n gs Or N et Loss Transferred to Retained Earnings Account)...

  The normal, positive, or favorab le b ala nce of Income Summary Account is credit and unfavorab le, negative or unusual b ala nce is deb it. If there is a credit b ala nce, t he n it means credit side is more t ha n deb it side a nd if t here is a de b it b ala nce, t he n it s hows that de b it side is more tha n credit side and resulted a deb it b ala nce. If income summary account increases, t he n we credit it and if it decreases, we deb it it. Th e credit b ala nce of income summary account (w h ic h represents net income) is added to retained earnings account and deb it b ala nce (w h ic h s h ows net loss) is deducted from retained earnings accoun t.

What Accounts Are Affected By Closing Entries I n Closing Entries , all temporary accounts are closed at t he e nd of t he accou nting period. T here are four types of accou nts w hich are affected b y closi ng entry process: a) All Revenues Accounts or all credit accounts in Income Statement are closed b y tra nsferring t hese to I ncome Summary Account. b ) All Expenses Accounts or all deb its accou nts in Income Statement are closed b y tra nsferring t hese to I ncome Summary Account. (c) Income Summary Account w hich is prepared o n  temporary  basis i n order  to close all expe nses and revenues accounts and t his accou nt  is also finally closed to Retained Earnings Account in order to calculate ending or closing retained earnings. (d) A Dividen d Account ( prepared to calculate a share of distri b utio n amo ng s hareholders from net profits / net income for the period ) w h ic h is also closed to Retained Earnings Account at t he e nd o...

  Accrued Legal Fees / Legal Fees Payab le / Outstanding Legal Fees is not a nominal account as it is related wit h legal fees payab le b y the compa ny to lawyers or attorneys against t he legal services received b y the compa ny during t he accou nting period. Outstanding legal fees is not concerned wit h real accou nt as it is related wit h livi ng or natural persons suc h as lawyers or attor neys. Outstanding legal fees is a Representative Personal Account as it s hows all of the certai n lawyers to w hom the compa ny did not paid against t he legal services received duri ng t he accou nting period. So, “Outstanding Legal Fees Account” is created to represent all of t he certai n lawyers to w hom the compa ny liab le to pay. Outsta nding legal fees is not closed until it is fully paid off. So, outsta nding legal fees is a personal account and not a nominal account or a real account.

Accrued Accounting Fees / Accounting Fees Payable / Outstanding Accounting Fees is not a nominal account as it s hows accou nting fees payab le b y the compa ny to accountant during t he accou nting period against w hich the accou ntant performed accounting works. So, outstanding accounting fees is not closed until it is fully paid b y the compa ny to accountants. Outstanding accounting fees is also not a real account as it is related wit h natural persons suc h as accou ntants. Accounting fees payable is a Representative Personal Account as it s hows certai n accountants to w hom the compa ny is liab le to pay for the accou nting works performed during t he period. So, accou nt title, “Outstanding Accounting Fees Account” is created to s how the total of the fees  w hich the compa ny is liab le to pay to all   accountants . So, Outsta ndi ng Accounting Fees is a personal account and not a nominal or a real account.

Accrued Audit Fees / Audit Fees Payable / Outstanding Audit Fees is not a nominal account as it is a fees payab le b y the compa ny to qualified audit firms or qualified c h artered accountants, w h o already conducting t he audit of its b ooks of accou nts and financial statements for t h e accounting period b ut still the compa ny did not paid to t h em. Outstanding audit fees is also not a real account as it is related wit h certai n persons to w ho the compa ny is liab le to pay for the period. Yes, outsta nding audit fees is a Representative Personal Account as t he compa ny is liab le to pay to certai n qualified auditors for co nducting t he audit works. So the accou nt wit h th e title “Outsta nding Audit Fees ” is created to represe nt all of t he certa in qualified auditors to w hom the compa ny is liab le to pay. So, audit fees is a perso nal account and not a real or nominal account.