What is income summary account, Accounting Basics

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Q. What is Income Summary account?

The Income Summary account is a clearing account used merely at the end of an accounting period to summarize revenues and expenses for the period. Subsequent to transferring all revenue and expense account balances to Income Summary the balance in the Income Summary account represents the net income or net loss for the period. Transferring or Closing the balance in the Income Summary account to the Retained Earnings account results in a zero balance in Income Summary. As well closed at the end of the accounting period is the Dividends account containing the dividends declared by the board of directors to the stockholders? We close the Dividends account straight to the Retained Earnings account and not to Income Summary because dividends have no effect on income or loss for the period.


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