Income summary

Definition

The income summary is a temporary account used to close revenue and expense accounts at the end of an accounting period. It helps in transferring the net income or loss to the retained earnings account.

5 Must Know Facts For Your Next Test

1. The income summary account has no normal balance because it is only used during the closing process.
2. Revenue accounts are credited to the income summary, while expense accounts are debited.
3. After transferring revenues and expenses, the balance of the income summary represents net income or loss.
4. The final step in using the income summary is to transfer its balance to retained earnings.
5. The income summary simplifies the closing process by consolidating multiple entries into a single step.

Review Questions

Related terms

Temporary Account: An account used to accumulate information until it is transferred to a permanent account at the end of an accounting period

Retained Earnings:

An equity account that represents accumulated profits not distributed as dividends to shareholders

Closing Entries:

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts