Key Concepts
According to the matching theory, other costs incurred during the operation of a business to generate revenue and other income must be matched against the revenue and other income earned in the same accounting period to determine profit for the period.
At the end of the financial period, all other expense accounts are closed and balances transferred to the Income summary account.
| Account | Debit | Credit |
|---|---|---|
| Other expenses (e.g. Salaries expense) | Income summary | [Specific Expense Account] |
Always use the specific expense account name in journal entries — never use a generic "Other expenses" account. Close all expense accounts by debiting Income summary and crediting the specific expense account.
- Salaries expense: $48,000
- Utilities expense: $6,200
Closing entries — 31 March 20X5:
| Date | Particulars | Dr ($) | Cr ($) |
|---|---|---|---|
| 20X5 | |||
| 31 Mar | Income summary | 48,000 | |
| Salaries expense | 48,000 | ||
| 31 Mar | Income summary | 6,200 | |
| Utilities expense | 6,200 |
Using "Other expenses" as the account name in a journal entry. Always use the specific account name (e.g. Salaries expense, Utilities expense) — "Other expenses" is a presentation heading only.
Closing an expense by debiting the expense account. Closing means reducing the account to zero — since an expense account normally carries a debit balance, it must be credited to bring it to zero. The closing entry always debits Income summary and credits the expense account.