Income summary

Income summary
Primary topic
Related topics
Methods and techniques

Income summary is a temporary account that is only used during the closing process. At the beginning of the closing process income summary has no balance. During the closing process, income summary will be debited and credited for various amounts. At the end of the closing process, income summary will again have no balance. Because of the fact that income summary has the effect of clearing the revenue and expense accounts of their balances, it is usually called a clearing account.

The Income Summary is very temporary since it has a zero balance throughout the year until the year end entries]] are made. Next, the balance resulting from the closing entries will be moved to Retained Earnings or the owner's capital account. Other claims use for this account include revenue and expense summary, profit and loss summary as well as income and expense summary.

When closing the accounts in the income statement accountants can choose to close them directly and transfer the values to the retained earnings account or transition them to the income summary account before finally transferring them to the retained earnings account[1].

In a manual accounting system, the closing entries will result in the following amounts in Income Summary[2]:

  • A credit amount for the total amount of the general ledger income statement accounts that had credit balances
  • A debit amount for the total amount of the general ledger income statement accounts that had debit balances

Income summary is used to summarize the closing entries for the revenue and expense accounts. The income summary is unique because it does not have normal balance side. The balance of this account is determined by the amounts posted to the account end of a fiscal period.

Division of the Income Summary[edit]

There are two types of Income Summary[3]:

  • Debit - total expenses greater than revenue. Debit balance is the net loss.
  • Credit - revenue greater than expenses. Credit balance is the net income.

The income summary account is a credit or a debit dependent upon whether the business earns a net income or incurs a net loss.Because income summary is a temporary account, the account is also closed at the end of a fiscal period when the net income or net loss is recorded[4].

Closing process[edit]

Closing process involves four steps[5]:

  • Debit each revenue account for its balance and credit income summary for the total revenue
  • Credit each expense account for its balance and debit income summary for the total expense
  • Debit income summary for its balance and credit the owners capital account
  • Debit the owners capital account for the drawing account and credit the drawing account

Closing entries are recorded in the journal and are dated as of the last day of the accountaining period. In the journal closing entries are recorded immediately following the adjusting entries.


  1. C.S. Warren, J.M. Reeve, J.Duchac 2010, p.151-152
  2. C.S. Warren, J.M. Reeve, J.Duchac 2010, p.151
  3. C.B.Gilbertson, G.M. Lehman 2014, p.206-207
  4. C.B.Gilbertson, G.M. Lehman 2014, p.207
  5. C.S. Warren, J.M.Reeve, J.Duchac 2010, p.153


Author: Patrycja Bajda