How To Close Income Summary Account With Net Loss Or Net Profit Journal Entry

 

Income Summary Account is closed to Retained Earnings Account. In case of Net Loss we need to credit it and debit retained earnings account as income summary account has a debit balance so to close it we need to credit it and debit retained 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 Account Closed to Retained Earnings Or Net Loss Transferred to Retained Earnings Account)

 

In case of net profit or net income, in order to close income summary account, we record the following entry:

                                  Income Summary a/c  XXX

 

                                                                    Retained Earnings a/c  XXX

 

(Income Summary Account Closed to Retained Earnings Or Net Profit Transferred To Retained Earnings Account)

So, in case of Net profit / Net income, the reverse situation is as compared to net loss.