What is an income summary?

An income summary serves as a temporary account that is used during the closing process of an accounting period. Its primary function is to aggregate and summarize the total revenues and total expenses of a business for that period. By transferring revenue and expense account balances into the income summary, businesses can calculate their net income or net loss. Once this is determined, the income summary is then closed to the retained earnings account, reflecting the net income in the equity section of the balance sheet.

This process is integral to ensuring that revenue and expense account balances start fresh at the beginning of the new accounting period, maintaining clarity and preventing the mixing of results from different periods. Thus, the identification of the income summary as a temporary account summarizing revenues and expenses is essential to understanding how financial results are managed and reported in financial accounting.