Final answer:
The Income Summary account is a temporary account used to transfer the balances of nominal accounts to the capital account. It summarizes the income and expenses for an accounting period before the net balance is transferred. The correct purpose of the Income Summary is reflected in option 3.
Step-by-step explanation:
The purpose of the Income Summary account is as a temporary clearing account to transfer the nominal accounts to the capital account. It is specifically designed to provide a summary of the revenues and expenses of a company during an accounting period. At the end of the period, the Income Summary account's balance, which represents the net income or loss for the period, is transferred to the owner's capital or retained earnings account, thereby preparing the nominal accounts for the next accounting period.
Option 1 is incorrect because the Income Summary does not zero out real accounts but rather nominal accounts. Option 2 is not the purpose of the Income Summary, although correctly reporting net income or loss is an outcome of using the account properly. Option 4 is incorrect because the Income Summary does not report all transactions to the capital account, but it summarizes the income and expenses for the period before the net balance is transferred.
Therefore, option 3 correctly defines the purpose of the Income Summary account.