Q15RQ - Horngren'S Financial And Managerial Accounting

Question

How is the Income Summary account used? Is it a temporary or permanent account?

Step-by-Step Solution

Answer

Income summary account records the revenues and expenses for the period, to estimated net income or loss. It is a permanent account. 

Step 1: Explanation of closing process

Closing processes are required at the end of the year. It includes the journalizing and posting the entries to close revenues, expenses, income summary and dividends accounts.

Step 2: Explanation on income summary account

Net income or loss measured in income summary account is transferred to retained earnings account, which is reported in the balance sheet.