Closing Entry For Income Summary

 

Income 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  XXX

 

                                                                                                      Retained Earnings a/c  XXX

 

In case of debit balance (i.e., net loss for the accounting period)

                                                                   Retained Earnings a/c  XXX

  

                                                                                                         Income Summary a/c  XXX

 

As income summary account is a temporary account, so it is closed either to retained earnings as in case of company or corporation, or it is closed to owner’s equity or capital account as in case of sole proprietorship or partnership businesses.