Definition and Objectives of Income Summary

Income Summary is a temporary and intermediate account used at the end of the accounting period to aggregate all revenues and expenses from different accounts before determining net result and transferring it to retained earnings account. It's considered an organizational accounting tool that doesn't appear in final financial statements, opened and closed during the same period. It facilitates the transition from the ended fiscal year to the new one and ensures a clean start for accounts.

Objectives:

• Facilitate the closing process of accounts
• Calculate net profit/loss for the period
• Transfer final result to equity
• Zero out revenue and expense balances
• Prepare accounts for the new period

Accounts Closed in Income Summary

Accounts closed in income summary include all revenue accounts such as sales revenue, service revenue, other revenues, and investment income. All expense accounts are also closed including cost of goods sold, operating expenses, administrative and general expenses, selling and distribution expenses, and financial expenses.

Additionally, extraordinary gains and losses such as asset disposal gains, extraordinary operation losses, and foreign exchange gains or losses are transferred to income summary. The goal is to aggregate all elements affecting the period's final result in one account to calculate net profit or loss before transferring it to equity.

Difference Between Income Summary and Income Statement

Income Summary is a temporary account used internally to facilitate the closing process at the end of the accounting period, opened and closed in the same period and doesn't appear in final financial statements presented to the public.

Income Statement is an official financial statement prepared for accounting periods and presented to investors and the public, containing organized details of revenues and expenses to show the company's financial performance. In summary, income summary is an internal accounting work tool while income statement is a final report for external disclosure.

Income Summary in Worksheets and Practical Applications

Income summary appears in accounting worksheets as a separate column preceding the balance sheet column, where revenues are collected on the credit side and expenses on the debit side to clearly show net result. In manual systems, it's used in 10-column worksheets as an intermediate stage between ledger accounts and financial statement preparation.

Practical applications include electronic systems that perform automatic closing and produce immediate income summary reports with direct linking to the final income statement. Practical benefits include reducing closing errors, clarifying the path of accounting data transfer, and facilitating review and audit processes for accountants and external auditors.