When entries 1 and 2 are posted to the general ledger, the balances in all revenue and expense accounts are transferred to the Income Summary account. The transfer of these balances is shown in Figure 3.7. Notice that a zero balance results for each revenue and expense account after the closing entries are posted, and there is a $1,932 credit balance in the income summary. The income summary balance agrees to the net income reported on the income statement.
When the income summary is closed to retained earnings in the third closing entry, the $1,932 credit balance in the income summary account is transferred into retained earnings as shown in Figure 3.8. As a result, the income summary is left with a zero balance.
Finally, when dividends is closed to retained earnings in the fourth closing entry, the $200 debit balance in the Dividends account is transferred into retained earnings as shown in Figure 3.9. After the closing entry is posted, the Dividends account is left with a zero balance and retained earnings is left with a credit balance of $1,857.
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