How to Calculate Income Summary for Closing


Closing journal entries must be done at the end of your business's fiscal year. Certain accounts must begin the new fiscal year with a zero balance; these accounts must therefore be "closed" before your new fiscal year begins. Draw or dividend accounts, along with expense and revenue accounts, must all be closed at the end of your fiscal year. "Income Summary" is a temporary account, used only for closing revenue and expense balances to the owner's capital or retained earnings account at the end of your fiscal period.

Enter closing journal entries to all revenue accounts. To close each revenue account, calculate the balance, which should be a credit. Enter a debit to zero the balance, and enter the matching credit to "Income Summary."

Close all expense accounts. Calculate the balance, which should normally be a debit. Enter a credit to bring the account balance to zero. Enter the offsetting debit amount to "Income Summary."

Total all the debits now showing in the income summary account.

Add the total credits in the income summary account.

Subtract the smaller total in the income summary account -- debits or credits -- from the larger total. If debits is the larger total, your ending balance is still a debit after deducting the credit total. If credits is the larger total, your ending balance is a credit after deducting the debit total. A credit balance indicates a net income for your business, and a debit balance indicates a net loss.

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