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

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