Income Summary Account
According to the accounting terminology income summary account is a transitional account in which all the expenses and revenue accounts of the income statement are transferred at the end of the accounting period. The net amount of expense or revenue that is shifted to the income summary account is equal to the profit or loss incurred by the business in that accounting period. This means when the revenue is shifted from the income statement to the income summary account the income statement account is debited and the income summary account is credited.
In the same way when the expense accounts are reported or recorded in the income summary account the expense account is credited and the income summary account is debited. If the remaining balance that is left within the income summary account is a profit then the income summary account is debited with the amount of profit and the retained earnings account is credited with the same amount of profit. The retained earnings account is a balance sheet account. On the other hand the amount that left in the income summary account is loss then the income summary account is credited with the amount of loss and retained earnings account is debited with the same amount.
In an automated accounting software the transfer of loss and profit or revenue and expense is done automatically whenever the accountants elect to close a particular accounting period.
Other Related Accounting Articles:
- The Closing Procedure in Accounting
- Negative Retained Earnings
- Explanation of Statement of Retained Earnings
- Accounting for bad debts and early payment discounts
- Accounting for Non-Trading Concerns
- Writing Off a Bad Debt
- Final Accounts
- Earned Capital
- Profit and Loss Statement
- Revenue
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