Resolved: Net Profit entry
Is there an entry for the $50 Net Income ? And if yes , what should it look like ?
thank you for reaching out, this is a very good question.
Yes, there is an accounting entry for booking net income. It occurs only as part of month-end (or year-end) activities when we have to "close the accounts".
We did not explain this in the lesson, but in short, every T-account should be closed by netting off the outstanding debits and credits. The corresponding entries go into a special Net Income account where profit is calculated.
In our example, the accounting entries would look like this:
Dr Revenue $250 (to close the Revenue account)
Cr Net Income $250 (the corresponding Cr for the entry above)
Cr COGS $200 (to close the COGS account)
Dr Net Income $200 (the corresponding Dr for the entry above)
In this way, in the Net income account, you have $200 Dr and $250 Cr, which corresponds to a Net Income of $50.
Again, this is a calculation accountants make at the end of the accounting period.
I hope this answers your question. Please let us know if you have any other concerns.
The 365 Team