EX 4-15 Closing entries

Prior to its closing, Income Summary had total debits of $1,190,500 and total credits of $1,476,300.


Briefly explain the purpose served by the income summary account and the nature of the entries that resulted in the $1,190,500 and the $1,476,300.


Answer:
The income summary account is used to close the revenue and expense accounts, and it aids in detecting and correcting errors. The $1,190,500 represents expense account balances, and the $1,476,300 represents revenue account balances that have been closed. In this case, the company had net income of $285,800 ($1,476,300 – $1,190,500).