The income summary account (ISA) is basically a temporary account to which all expense account statements and income statement statements are reported at the end of a financial reporting period. So, converting expenses from one statement to another means debiting an account for the amount of money recorded in that statement, and crediting another account for that same amount in another statement.
In order to convert expenses, it is necessary to have the expense statement for each quarter or year available to convert the expenses from the current balance to the expense statement. This can be done manually by pulling up the statements every quarter and converting the expenses to the expense statement. The expense report contains the category of the item being purchased and is organized by item type. This means there is only one account to track, rather than two accounts that will be debited from the same item.
If there are several items being reported on a quarterly basis, then it becomes necessary to convert these items into a single account in order to reduce the number of accounts to track. The best way to accomplish this is to group the different categories and use one account to track all of the categories. Then, all of the reports will show up in one account on the statement and can be easily accessed.
Some of the major categories on the income statements include: Income from Operations, Income From Discontinued Operations, Income Taxes, Interest Income, Investment Income, Other Expenses, Balance of Cash and Savings, Accounts Receivable, Accounts Payable, Inventory, and General Ledger. Once you have converted the expense accounts to one account, you must check to see if the balance of the account has changed since the previous year. If so, then you will need to make adjustments to the current balance.
If the current balance is different from the amount due, then it means you have made errors on the prior year’s balance. You will have to correct the errors by applying a percentage adjustment to the current balance. This can be done manually by using spreadsheet programs that have formulas to calculate the adjustment.
If the balance of the account was positive in the previous year, then the adjustments you made to the balance of the account in the prior year will need to be adjusted again. This is especially true if there were no adjustments in the previous year.
A final adjustment to the current balance is also made to the total of the difference between the balance of income and expense in the prior year’s balance. This difference is the sum of all of the difference between the balance of income and the balance of the previous year’s balance. If there was a negative difference, then you will need to apply a penalty to that difference as well.
The sum of the difference between the balance of income and expense plus the penalty equals the balance of income minus the total of the penalty will equal the balance of income minus the balance of the previous year. This means the balance of the current year minus the balance of the prior year.
Once the balance of income and the total balance are calculated, you need to determine if the total of the difference between the total of the difference of the balance of the prior year’s balance with the balance of the current year’s balance is more than zero. If the sum of the difference is less than zero, then you are on the road to being in debt. Debt is defined as the difference between the current balance of income and total of the difference of the balance of the previous year’s balance with the balance of the current year’s balance.
The higher the debt ratio is the more debt the account holder is facing. The debt ratio is determined by dividing the current balance of the account by the sum of the difference of the current and prior balance of the previous year.
The lower the debt ratio, then the less debt the borrower is facing. However, it does not mean that you can’t eliminate debt without the debt ratio being a very high number.