 In this discussion, we will discuss the discussion question of explain the closing process. So this discussion question is as straightforward as it can be when considering the topic of the closing process, just giving us that broad topic of explain the closing process. When approaching something like this, we might want to start out with taking a step back because it is an open-ended discussion question and first start with where the closing process is in the accounting cycle because that puts it in the context that tells us what we're doing in context of the whole process here. So in broad terms, we would say, well, the accounting cycle includes those day-to-day process transactions that happen over the month or year, those invoices, those bills, those checks that are going to be entered, then we have the adjusting process that will take place making those adjustments to the unadjusted trial balance to make sure that the adjusted trial balance is correct. Balances are correct in accordance with accrual principles as best as possible. Then we're going to take that adjusted trial balance and create the financial statements, financial statements being the main event, the thing we are in business to do here, make those financial statements for decision makers to make decisions with. And then you think, well, maybe we'd be done there, but no. We have the closing process that happens after that because we know we're going to start this process over again, just like when we close out a shop at the end of the day. If we're in a coffee shop and we do a coffee shop and we're working there, closing shift after they've done the main event of collecting revenue throughout the day, then needs to clean everything up because they know that the morning shift will have to start this whole process over again. Same thing here, main event happened. We have the financial statements. We've basically, you know, done our job there, but we got to close everything out at the end of the time period in order to start the process over again. So in a broad sense, that's what the closing process will do. We'll put in these closing journal entries to start the process over. So what do we need to do in order to close things out? Then we're going to get into the detail. If you're talking about the shop, of course, that is cleaning things up, they're going to clean up the grill, they're going to take out the trash, they're going to mop the floors and whatnot. What are we going to do in the closing process to set up for the new process in the accounting cycle? We're going to reset the temporary accounts. And this is similar to kind of just resetting a stopwatch to see a new race happening because the temporary accounts are the accounting stopwatch. They're the temporary accounts. So the ones that do not make any sense unless you have the beginning and ending date. They're not making any sense unless we're talking about performance over time. And therefore, we need the time range. And therefore, we need to reset the clock when we move on to a new time range. So at the end of the month or year, we will be considering a new time range. We will reset the temporary accounts. Which accounts are the temporary accounts? It'll include the entire income statement, revenue and expenses. All revenue and expense accounts will be reset to zero at the end of the period, at the end of the month or year, generally. And the other kind of tricky account will be the draws account because it's not part of the normal, the income statement, which includes all of the, most of the temporary accounts, but is still temporary. So therefore, you can't forget the draws or if it's a corporation, the dividends. So those will also be closed out. And they will ultimately be closed to the capital account. And so two things are happening here then. We're clearing out all the closing, all the temporary accounts to be set up to be used in the next time period starting at zero and counting upwards. And we're also making the equity section correct by closing out net income in a sense and the draws to it in a similar way as we see in the statement of owner's equity. The statement of owner's equity, calculating beginning equity plus net income minus draws or dividends, usually getting that ending equity. Well, here we're doing the same thing in journal entries. We're going to have the beginning equity balance, increasing it by net income through the closing process, decreasing it by draws or dividends depending on if we're a sole proprietor or a corporation and getting to the ending equity. So once we have that, you may want to go through the components of the closing process. Most textbooks will be discussing a four step closing process. So if you go through the components, you probably want to be listing a four step process. You could consider it all happening in one step, you know, and a lot of accounting software will actually do the closing process pretty much automatically automate the process. But we still need to know what it's doing. To be able to read the reports, but when answering an essay question in a textbook, you typically want to see a four step process often, and that would be step one. We're going to close out revenue to a clearing account called the income summary. Step two, we're going to close out the expense accounts to the clearing account of the income summary, resulting in all revenue and expense accounts being zero after that point in time and the income summary account having an amount equivalent to net income, which was reported on the financial statements before this closing process. Then once we have the equivalent of net income and all zero balances in the temporary accounts of the income statement, all income statement temporary accounts, we will close out the temporary or the income summary account to the capital accounts. And once we do that, the income summary account will be zero and the capital account will go up by net income or down if there was a loss for the time period. And then the last step is going to be the closing of the draws account to the capital account or the equity account as well or the dividends. If we are a corporation bringing the draws down to zero, bringing the capital account down by the amount that was withdrawn.