State BPA Fundamental Accounting Practice Exam

Is the income summary account considered an owner's equity account?

1. Yes

2. No

3. Only temporarily

4. Depends on the context

The correct answer is: Yes

The income summary account plays a critical role in the closing process of accounting, specifically used to accumulate the revenues and expenses for the period. At the end of an accounting period, revenues and expenses are transferred to the income summary account to calculate the net income or net loss for that period. After this process, the balance in the income summary account is transferred to the owner's equity section of the balance sheet, which adjusts the retained earnings or the owner's capital account. This is why the income summary account can be considered associated with owner's equity, albeit temporarily. The temporary nature of the income summary's relevance means that it aggregates net income over a period before closing, but ultimately, it influences owner's equity by affecting the retained earnings or capital account. Thus, while it is not a permanent owner's equity account, its relationship and impact on owner's equity during the closing process are significant, leading to the perspective that it can be seen as connected to owner's equity accounts in the broader context of the accounting cycle.