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Income Summary

A temporary account used only in the closing process to where the balances of revenue and expense accounts are transferred; its balance equals net income or net loss and is transferred to the owner's capital account.

Closing Temporary Accounts

• revenue, expense and drawing accounts are called temporary accounts or nominal accounts.

• they accumulate the transactions of only one accounting period.

• at the end of the accounting period, the balances in these accounts are transferred to the capital account through a temporary clearing account called Income Summary.

• this process updates the balance in the capital account for changes that have occured during the period and it returns the balances of the temporary accounts to zero.

• the owner's equity account and the other balance sheet accounts are called real accounts.

• the process of transferring balances of the temporary accounts to capital is called closing the accounts.

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