What may be included in the entry to close the income summary account?

Question

Debit to the owner's capital account and credit to income summary

Debit to income summary and credit to the owner's capital account

Debit to cash and credit to income summary

Debit to income summary and credit to cash

Answer 1

To close the income summary account, the entry typically involves transferring the net income or loss for the period to the owner's capital account. Here’s how it works:

1. If there is a net income, you will debit the Income Summary account and credit the Owner's Capital account. This reflects the increase in the owner's equity due to the net income.

2. If there is a net loss, the entry would be the opposite: you would debit the Owner's Capital account and credit the Income Summary account.

Based on the context provided, the correct option for closing the income summary account when there is a net income is:

Debit to Income Summary and credit to the owner's capital account.

So, the correct entry to close the income summary account in the case of net income is:

Debit to Income Summary and credit to the owner's capital account.