For example, in the closing process each revenue account will be debited with the amount of its credit balance, and the total of all those debits will be entered as one credit in the account Income Summary. Similarly, each expense account will be credited with the amount of its debit balance, and the total of all of those credits will be entered as one debit in Income Summary.
If the credit side of the Income Summary is greater than the debit side, it means that revenues were greater than expenses and the company had a positive net income. (If the debit side of the Income Summary is greater than the credit side, the company had a net loss.)
Immediately after the amounts are recorded in the Income Summary, the Income Summary account balance will be transferred (closed) to Retained Earnings (if a corporation) or to the owner's capital account (if a sole proprietorship).
With accounting software, the closing process is automated and an income summary account might not be used.
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