Lesson 4 Essay - Write a 500-1,000-word essay describing...

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Write a 500-1,000-word essay describing how and why the Income Summary account is used. Is this account a temporary or permanent account? At the end of the year every business must prepare financial statements and close out the books to get ready for the new year. An account that is used to help with this process is the temporary account titled Income Summary. Without this account, the closing process would be cumbersome and there would be additional, unnecessary paperwork involved. “Closing temporary accounts allows your company to easilytrack costs and income on a yearly basis”. (The closing process and Income Summary account, 2013, Para9)“The closing process zeroes out all revenue accounts and all expense accounts…including the owners’ withdrawals…in order to measure…the periods’ net income separately from all other periods”. [CITATIONNob14 \p 215 \l 1033 ] These accounts, expense, revenue and owners withdrawal, are temporary accounts and must be zeroed out before beginning a new accounting cycle, or period. The accounts that are on the balance sheet are the permanent or real accounts and are not closed at the end of the accounting cycle or period. These are the asset, liability and capital accounts. “One way to clear these accounts at year end is to debit each revenue account and credit retained earnings while crediting each expense account and debiting retained earnings”. (The closing process and Income Summary account, 2013, Para 4) This process would be cumbersome if you were to process eachaccount one by one. This is especially true if you had 40, 50 or more different expense and revenue accounts. “In addition, separate entries do not allow for the simple determination of net income (loss) for the year”. (The closing process and Income Summary account, 2013, Para 5) So, instead of making separate entries, you can use “the Income Summary account to simplify the closing process”. (The closing process and Income Summary account, 2013, Para 5)By using the income summary account “all revenue accounts are closed together in a single entry, while all expense accounts are closed in the second entry”. (The closing process and Income Summary account,

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