Closing Entry For An Income Statement Account With A Credit or Debit Balance

 

Closing entry of Income Statement with a debit balance means that there is a net loss incurred by the business during the accounting period. So, to close income statement with a debit balance, we need to credit income statement and debit Income Summary Account as it is transferred to Income summary account, which is a temporary account, and such debit balance represents a Net Loss which is deducted from opening retained earnings in Retained Earnings Statement.

The closing entry to close income statement with a debit balance to income summary account is shown below:

                                                              Income Summary a/c  XXX

 

                                                                                                    Income Statement a/c  XXX

  

                                          (Income Statement Account Transferred To Income Summary Account)

Actually, when revenue accounts exceed the expense accounts, we have an income statement with credit balance but in the reverse situation i.e., when expense accounts are more than revenue accounts, the company faces loss for the period and income statement has a credit balance.

All the debit accounts’ balances in income statement represent expense accounts and all the credit accounts’ balances shows revenue accounts and the carried down balance (Balance c/d), which is the difference between revenue accounts and expense accounts, shows either net income or net loss.

The closing entry to close income statement with a credit balance is shown below:

                                                               Income Statement a/c  XXX

  

                                                                                                     Income Summary a/c  XXX

 

                                       (Income Statement Transferred To Income Summary Account)

Usually, the normal, usual, positive or favourable balance of income statement account is credit which shows net income or net profit while unfavourable, negative or unusual balance is debit, which represents net loss for the period.