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  I ncome Summary Account is closed to Retained Earnings or Equity or Owner’s Equity or Capital Account at the end of the accounting period after all the revenues and expenses accounts are transferred in it in order to calculate either its credit balance or debit balance. If income summary account has a credit balance, then it means that revenues exceed expenses accounts for the period resulting a net profit or net income but if it has a debit balance, then expenses exceed revenues accounts during the period resulting a net loss. The journal entry to close income summary account depends upon whether it has a credit balance or a debit balance. In case of credit balance (i.e., it shows net income for the accounting period)                                                                 Income Summary a/c  X...

  Retained Earnings is not closed at t he e nd of the accounting period as it is a Permanent Account unless the business is going into liquidation, retained earnings account is not closed, so retained earnings closing entry is not recorded at the time of closing entry process. Retained Earnings is that part of net income which is retained in the business for funding different business projects and for other emergency purposes. Statement of Retained Earnings is prepared to calculate retained earnings. In fact, Income Summary Account and dividend account are closed to retained earnings account at the end of the accounting period. In other words, all the temporary accounts are closed at the end of the accounting period and not permanent accounts (Assets, Liabilities & Equity).

  The entry to adjust the accounts for Expenses Accrued such as Salaries Accrued , Wages Accrued , Rent Accrued or any other expenses accrued at the end of the accounting period is recorded by a debit to relevant expense accounts i.e., Salaries Expense Account, etc., and a credit to relevant expenses accrued account such as salaries accrued account, etc. In Journal Entry form, we can show as below:                                                            (For Salaries Expense)                                                               Salaries Expense a/c  XXX                             ...

  Revenue Accounts are temporary accounts, so there is a requirement to close all the revenues accounts at the e nd of the accounting period, so Revenues or Income Accounts are closed to Income Summary Account for the period. As the journal entries to close all of the revenue accounts are the same, so, we record here a general entry to close each of the revenue accounts for the accounting period. Examples of revenue accounts include sales, fees received, commission received, etc. As the normal or usual balance of revenue accounts is credit, so to close these accounts, we debit these accounts and credit Income Summary Account as shown below: (The Journal Entry To Close Revenue Accounts Includes Relevant Revenues Accounts And Income Summary Accounts)                                                                 ...

  Expe nses closing entries are recorded at the time of closing Temporary Accounts to Income Summary Account for t he period. As Expenses Accounts have no b ala nces, so t hese accou nts are required to close at t he e nd of t he accou nting period. To close expenses accounts, we need to credit these as these have normal debit balances, so to close these, we credit these and debit Income Summary Account which is a temporary account. Examples of expenses accounts are rent, Salaries, Wages, etc. As it is very lengthy and time-consuming work to record closing expense accounts journal entries for all of the expenses accounts separately, so, simply, we record only the closing journal entry for each of expense account in a general entry form which is shown below:                                                           Income Summa...

What Does Internet Connection Revenue / Accrued Internet Connection Revenue Mean In Accounting? I nternet Connection Revenue is a Revenue received by the internet service providing company from clients against the internet connection facilities provided to them for the accounting period. It is recorded in Income Statement or Statement of Comprehensive Income or Profit and Loss Account on Income Side. For i nternet service providi n g compa ny, the internet connection revenue is created as it provides internet services to clients and received a fees. Following journal entry is recorded w he n we received it from clients for cas h / b a nk:                                                                  Cas h a/c / B a nk a/c  XXX                   ...

Internet Connection Expense And Accrued Internet Connection Expense Journal Entry In Accounting Internet connection, e.g., LAN (Local Area Network) WIFI, etc., means t hat the compa ny uses internet facilities from internet service providing companies and pays a b ill usually o n every mont h. Internet connection is an Expense for t h e company and it is recorded in Income Statement for t he accou nting period. W he n t he compa ny paid for cas h or b a nk, t he n we record t he followi ng entry as s how n b elow:                                   Internet Connection Expense a/c  XXX                                                                                       ...

The normal, positive, favourab le or usual b ala nce of Income Summary Account is credit b ala nce b ecause usually reve nues exceeds expenses accounts during t he accou nting period for a profitab le b usi ness. T he credit b ala nce represents t he Net Profit or Net Income of t he b usi ness for the current accounting period. On t he other ha nd, t he negative, unfavourab le or u nusual b ala nce of income summary account is deb it b ala nce resulting a net loss for t he b usi ness. As inc ome summary accou nt is a temporary account, so we close it to retained earnings accoun t according to its credit b ala nce or deb it b ala nce t hat must match with the I ncome Statement’s b ala nce. So, we can say t hat i ncome summary eit her has a credit b ala nce usually or a de b it b ala nce unusually and we close it according to the basis of its balance.

Drawings Account is not a Nominal Account as it is not an expense account. So revenues and expe nses accounts are related wit h nominal accounts. Drawings Account or wit h drawals account is also not a real account w hich is related with assets a nd liab ilities accou nts. Yes, drawi ngs account is a representative personal account which is a type of personal accounts as it is related wit h the ow ners of t he b usi ness w ho are the natural persons. For Example, Mr. A, Mr. B, Mr. C, etc., are the part ners of t he b usi ness or in case of sole proprietors hip, Mr. X is o nly t he ow ner of t he b usi ness w ho withdraws cash or goods from b usi ness for his ow n personal use. So, a drawing account (Mr. X’s Drawing Account) is created wit h the name of Mr. X. Similarly, for a partners hip, separate drawi ngs accounts are created w hich represe nts eac h of part ners’s drawings accounts e.g., Mr. A’s Wit h drawals Account, Mr. B’s Wit h drawals Account, Mr. C’s Wit h dra...

  A Trial Balance should match or agree with Balance Sheet otherwise, the total of de b it accou nts a nd credit accounts in trail b ala nce is not equalized. Also, t h e assets side and liab ilities side i n b ala nce sheet are not balanced and hence as a result, t h e fi nancial statements did not s how true a nd fair view of financial information. To matc h the trail b ala nce wit h b ala nce s heet, there may b e errors, mistakes a nd frauds due to w hich these are not agreed in monetary value, w hich must b e corrected. There may be possible reasons, errors or mistakes (mentioned below) due to which not only t he de b it amou nts and credit amounts of trail balance are not agreed b ut also a trial b ala nce is not agreed with b ala nce s heet.   (i) Errors Causing Agreement of Trial Balance (ii) Errors Causing Disagreement of Trial Balance (iii) For uncertainty or if the accountant is unclear about a particular account or when the trial balance is not ag...

Closing Entries ultimately will affect retained earnings account as all t h e temporary accounts (Revenues & Expenses Accounts) firstly transferred to Income Summary Account and t h en transferred to income summary account w h ic h is closed to retained earnings. Dividend and drawings accounts are also closed to retained earnings account w h ic h is finally added to owner’s equity or equity account. Actually, all of the revenues and expenses accounts are created as a result of profitab le activities of th e owners of t h e b usi ness, so t hese affect ultimately affect retai ned earnings and owner’s equity or equity account. But, closi ng entry process does not affect permanent accounts suc h as assets e.g., Cash Accou nt, Accounts Receivab le, etc., a nd lia b ilities such as Accou nts Payab le, Loa ns, etc. So, we can say t h at closing entry entry process affects owner’s equity or equity account as t h e closing of temporary accounts are closed at the end of ...

  Journal Entry To Close Dividends Account / Drawings Account Distri b utio ns to s hareholders or stockholders (called Divide nds ) are actually the shares of profits distri b uted amo ng s hareholders or stockholders for the year. To close distributions to shareholder accou nt (dividend account), we record following journal entry:                                      Retained Earnings Account a/c  XXX                                                                                  Distributions To Shareholders a/c / Dividend a/c XXX                    (Distributions To Shareholders Or Dividend Account Closed To Retain...

Yes, Trail Bala nce s hould match with Bala nce S heet as b oth are the esse ntial steps of accounting cycle. One is connected wit h a not her if you miss a ny steps in b etwee n, your financial statements did not s how true a nd fair of financial information to users of financial statements. Also, Study, “ What Happens If You Miss A Step In Accounting Cycle ” Actually, all t he accou nts recorded in journal are finally transferred to concerned ledgers’ accounts and t he n to trial b ala nce (w h ic h is also a ledger) and t h en to financial statements including income statement, b ala nce s heet, statement of retained earnings and cash flows statement. A ny mistake, error or fraud (if not detected or corrected earlier) in a b usi ness transaction is carried forward or transferred to all t he fi nancial statements connected wit h each other duri ng an accounting cycle. However, there are possibilities that a trial balance is agreed with balance s heet, b ut still the...

  Here, we will study about journal entries related to I ncome Summary Account and then record these entries in its t account or general ledger’s account. As we know that an income summary t account (which is a temporary account) is prepared to close all the revenues and expenses accounts i.e., temporary accounts at the end of the accounting period. So, t here are three possible entries related to the income summary account. 1. Closing All Revenue Accounts The first entry is related with transferring of revenues accounts to income summary account in order to close revenue accounts for the period. The entry to record is shown below: Closing Revenue Accounts Journal Entry                                    Revenue a/c  XXX                                             ...