16 - Closing the Books at the End of the Period (The Closing Process)

Accounting 101 with Jimmy Stewart

Example: You own a sole proprietorship. For this period, you had revenue of $100,000, wage expense of $40,000, and computer expense of $30,000 (net income of $30,000). You also contributed $10,000 to the business this period.

Step 1 – Transfer Revenue and Expense items to Income Summary

Debit Credit

Revenue $100,000

Income Summary $100,000

Income Summary $40,000

Wage Expense $40,000

Income Summary $30,000

Computer Expense $30,000

Step 2 – Transfer Income Summary to Equity (capital account)

Debit Credit

Income Summary $30,000

Capital Account – YOUR NAME $30,000

Step 3 – Transfer contribution/distribution accounts to capital account

Debit Credit

Contributions – YOUR NAME $10,000

Capital Account – YOUR NAME $10,000