Posting Closing Entries and Preparing a Post-Closing Trial Balance, Page 10

Closing Expenses to the Income Summary

Transferring expenses to the income summary is the second closing entry. The balance of the expense accounts is taken from the income statement.

The closing entry is: 

• Debit the income summary for the total expenses. 
• Credit each expense account for the balance amount.

Examine the following example to further your understanding:

Wages total $100 and rent expenses are $300.

Step 1: Analysis 

1. Wages and Rent expenses are expense accounts. 
2. Income Summary is a temporary Owner’s Equity account. 
3. The balances of the two expenses accounts are decreased to zero. 
4. Decrease $400. The total amount $400 is transferred to the income summary account.

Step 2: Debit – Credit Rule 

1. Transfer the expenses to the Income Summary account. Debit income summary for $400. 
2. Record the decrease in expense accounts as credit. Credit Wages $100 and Rent $300.

Step 3: Make a Journal Entry 

General Journal