 In this lecture we're going to talk about the closing process step one of the step four process last time we talked about the objectives of the closing process which in essence was to close out the temporary accounts all the accounts from the draws and the revenue and expenses on down to zero putting that balance into the capital account. We talked about how we were going to do that we're going to do a four step process including close out the income to the income summary then close out the expenses to the income summary and then we're going to close out the entire income summary to the capital account. And finally close out draws to the capital account we're going to start off with step one of those four step processes in order to do this we are adding this new account you've probably been wondering income summary account what is that where did it come from why is it there. The income summary can be called a clearing account meaning it's going to start at zero and it's going to end at zero right when we're done with this four step process which we're going to do basically at the same point in time. Why then do we have it if it's just going to start at zero and then end at zero its purpose is going to be to allow us to close out the entire income statement meaning the revenue and expenses to the income summary. The result then will be that the income summary will have net income in it which is revenue minus expenses. Then we can check to see that the revenue and expense accounts are totally closed out that it's zero that the income summary will have net income in it then we can allocate the income summary to the capital account. This can be a helpful process especially when we go to like partnerships or some more complex equity sections because then we can know that we're allocating the proper amount to the partners in the case of a sole proprietor. Then we're allocating to the sole proprietor the sole capital account in this format. Remember our goal is to have all these accounts be zero starting with revenue. There's only one revenue account in this case and most of the time there's only going to be a few revenue accounts because we only do a few things as opposed to expenses where we have a lot of different things that we spend the money on. We concentrate specialized in one or two things usually from a revenue side. Therefore we just need to make that revenue account zero. Generally general entry wise in order to do that we see a credit balance represented by the brackets. We need to do the opposite thing to it then to make it go down which is going to be a debit for everything in there. The three thirty two two fifty if we post that then we'll post the debit that will take it to zero. That's the goal we want it to be at zero. Then we need to credit something what are we going to credit. Ultimately we want it in the capital account. That's what we're ultimately aiming for but we're first going to put it into that income summary. That's what we're going to do first to put it into that clearing account. There we have it in the clearing account and the clearing account goes up in the credit direction to the three thirty two two fifty. In essence all we've done then is move the revenue here up to the income summary account. That's the first step of our four step process. This is where we're at at this point in time. This is where we need to be. Remember we're going to keep moving on to the next steps next time. So we have now closed out the income. Next time we're going to close out the expenses to the income summary. Then we're going to take the income summary which will then have net income in it. Close it out to the capital account which is where we ultimately want that. Then we're going to close out draws to the capital account.