Income Summary Closing Entry—Journal Entries Explained with Examples

At the end of an accounting period, temporary accounts, which is a revenues and expenses are closed to the Income Summary account. And the Income Summary is closed to Retained Earnings (or Capital, in sole proprietorships). helps prepare the accounts for the next period.

Below are journal entries related to closing the Income Summary account.

Step-by-Step Journal Entries for Closing

Step 1: Close Revenue Accounts to Income Summary

Date	Account Title	Debit ($)	Credit ($)
Dec 31	Revenue	15,000
	Income Summary		15,000
close revenue account to Income Summary.

Step 2: Close Expense Accounts to Income Summary

Date	Account Title	Debit ($)	Credit ($)
Dec 31	Income Summary	10,000
	Rent Expense		4,000
	Salaries Expense		3,000
	Utilities Expense		3,000
close all expense accounts to Income Summary.

Step 3: Close Income Summary to Retained Earnings (Net Income)

Date	Account Title	Debit ($)	Credit ($)
Dec 31	Income Summary	5,000
	Retained Earnings		5,000
To close net income to Retained Earnings.

💡 Note: If there was a net loss, reverse the entry: Debit Retained Earnings and Credit Income Summary.

Step 4: Optional – Close Dividends to Retained Earnings

Date	Account Title	Debit ($)	Credit ($)
Dec 31	Retained Earnings	1,500
	Dividends		1,500
close Dividends account to Retained Earnings.

Summary:

• Revenue → Income Summary
• Expenses → Income Summary
• Income Summary → Retained Earnings
• Dividends → Retained Earnings