In Closing Entry Process, All Accounts Are Closed To Income Summary Except Dividend And Why?

 

In closing entry process, each of temporary accounts (Revenues, Gains, Expenses, Losses, etc.) are closed to Income Summary Account except Dividend Account because dividend is a distribution of share of net income or net profit among the owners of the business in other words we only calculate dividend, if we know what is net income for the accounting period.

Actually, dividend is related with the share of earnings among shareholders during the year, so it is transferred to Retained Earnings Account.

Also, the dividend account is a Contra Equity Account which is deducted from equity.

In case of Sole Proprietorship or Partnership, drawings is deducted from owners’ equity on balance sheet.

So, each of Revenue and Expense Accounts is firstly closed or transferred to Income Summary Account and then to Retained Earnings Account at the end of the accounting period except dividend account which is only transferred either to Retained Earnings Account as in case of a company or a corporation and to Owners’ Equity Account as in case of Sole Proprietorship or Partnership.