Regarding closing entries for the year with the income summary. Do you reverse the entry if the business shows a net loss and if the income summary account is higher on debits than credits what is the result?

How to calculate growth rate of a trading firm?

How to calculate growth rate of atrading firms?

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Originally Posted by pradeepmangalath

how to calculate growth rate of a trading firm?

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Please post this as your own thread. People who may be able to answer this question may not be looking at a post about closing entries.

To the original poster... your thinking is on the right track. If you have a loss, the debit side will be bigger than the credit side of your Income Summary account. (Expenses being bigger than revenues.)

To close an account, you always reverse the balance out. However, I know what you're meaning to ask -- if you reverse the way the entry itself is done. Yes. Because the debits are bigger, in order to close that account you would have to credit it. And then you'd have to debit Capital. It's actually the same process, only flipped around, because a loss will reduce Capital (or Retained Earnings, whichever you're using).