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How to Do a Closing Entry for an Income Summary

by Christopher Carter ; Updated September 26, 2017

Closing entries allow a corporation to close temporary accounts, such as revenue and expenses. Closing temporary accounts to the company’s income summary account allows the company to begin the next accounting cycle with a zero balance in the revenue and expense accounts. After the expense and revenue accounts are closed, the company must make an entry in the general journal to close the income summary account. The balance in a company’s income summary account must be transferred to retained earnings to take the amount off the company’s books.

Closing Revenue

Write the date when the company closes the revenue account. Communicate the day and month of the closing entry in the general journal.

Debit the company’s revenue account for the balance in the revenue account. For instance, a company with a $10,000 balance in revenue must debit revenue for $10,000. This entry takes the amount contained in the company’s revenue account off the books.

Credit the income summary account for the amount contained in the company’s revenue account. A company with $10,000 in the revenue account must credit income summary for $10,000 to close the revenue account. This entry transfers the revenue balance to the company’s income summary account.

Closing Expenses

Write the date when the company closes the expense account. Indicate the day and month when the company closes the expense account to the income summary.

Debit income summary for the balance in the company’s expense account. Let’s say a company has $5,000 in the expense account. In this scenario, the company must debit income summary for $5,000. This eliminates the expense account balance from the company’s books.

Credit expenses for the amount contained in the company’s expense account. If a company has $5,000 in its expense account, the company must credit expense for $5,000. This entry transfers the expense account balance to the company’s income summary.

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Closing Income Summary

Write the date when the company transfers the income summary balance to the retained earnings account. Draft the day and month when the company closes the income summary account.

Debit income summary for the balance contained in the income summary account. For instance, a company with a $5,000 credit in the income summary account must debit income summary for $5,000. This entry takes the income summary account balance off the company’s books.

Credit retained earnings for the balance contained in the income summary account. A company with a $5,000 balance in the income summary account must credit retained earnings for $5,000. This entry closes the income summary account and transfers the $5,000 to retained earnings. The $5,000 credit entry illustrates an increase in the company’s retained earnings account.

About the Author

Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.

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