Final answer:
If the entry to close Income Summary to Retained Earnings involves debiting Income Summary, it means that the company's expenses were greater than its revenues, resulting in a net loss for the fiscal year.
Step-by-step explanation:
If the entry to close Income Summary to Retained Earnings includes a debit to Income Summary, it indicates that expenses exceed revenues. In accounting, the Income Summary account is used to accumulate the revenues and expenses for a period. If there is a debit balance in Income Summary, it means that the expenses were higher than the revenues during the fiscal year. This scenario generally leads to a decrease in Retained Earnings, as the company experienced a net loss. It is similar to how a budget deficit occurs when government spending (expense) is greater than tax revenue (revenue) over a fiscal year.
In practice, the closing entry would look like this: Debit Income Summary and Credit Retained Earnings. This entry effectively transfers the net loss to the Retained Earnings account, thereby updating the equity section of the balance sheet to reflect the budgetary outcome of the business for the year.