 Hello, in this lecture, we're going to talk about the closing process step three of the four step closing process, which will include the close of the income summary to the capital account. Remember that our objective is to close out all the temporary counts, which are all the counts below capital, including draws and the income statement accounts of revenue and expenses. So we want the adjusted trial balance to be converted to the post post closing trial balance, which means that everything from capital on down will be zero. The way we do that is the four steps and that includes step one, we did in a prior video close out income to the income summary. Step two was to close out expenses to the income summary. Step three is what we're going to do now close out the income summary now having net income in it to the capital account. Then we're finally going to close out the draws to the capital account. This is a summary of what we did in a prior video step one close out the income to the income summary. So here we have income that was now zero. We basically just move that up to our clearing account being the income summary account. Then step two, we closed out all of the expenses to the income summary account. Now we have everything zero on the income statement. All revenue and expense accounts are zero and what's in the income summary net income. It's important to recognize that before we closed out the income summary to the equity section and after we have closed out the income and expenses to the income summary. The income summary now has net income in it. Why is that important? Many test questions will actually ask the question in terms of what is an income summary when asking how the allocation should be allocated to things. Like partnerships and therefore we need to know that the income summary has net income in it. So we know how to allocate that out in a lot of test questions. It's also an important process because what we're saying is that it's a check figure. Everything on the revenue section is zero now income and expenses are now zero. Net income is now in the income summary. We can now say we look good. We are verified. We can now take that net that income summary, which is also net income that should have been on the income statement that we reported as a 1231. We're going to take that number and allocate it to the appropriate equity section, the appropriate capital accounts. In the case of a sole proprietor like this one, we just have the one capital account. If we had a partnership, we would have to allocate it to multiple capital accounts in accordance with their profit sharing. The journal entry we now need in step three. We'll close out or make zero the income summary account and put that balance into the owner's capital account. So we can look at the income summary and say what's in it. We see net incomes in it. It's got a credit because it's net income credits are winning, meaning credits minus the debits revenue minus expenses has that credit balance. We need to make it go to zero now. We're going to clear out the clearing account. Therefore, we're going to do the opposite thing to it, which in this case will be a debit. So we're going to debit for whatever's in there, 88, 9, 80 in this case. If we post that out as we go, we can see that it will then go to zero. And then we're going to have to credit something. And of course, we're finally going to credit what we wanted to credit this entire time, which is to put the entire income statement into one number into the capital account. So we're going to credit the capital account. If we post that out, what will happen? Well, we have a credit balance in the capital account of 658, 820. We're crediting it again, 88, 9, 80. A credit and a credit will be the same thing making the credit go up in the credit direction. Does that make sense for that to happen? It does because what we're saying is that this is the credit balance that was owed to the owner or the assets minus the liabilities as of the beginning of the time period or at least before net income was allocated to it. Now we're saying that net income was earned by the business. This is the owner of the business represented by the equity section. And therefore the equity section needs to go up by the amount that was generated revenue minus the expenses in order to help generate that. That's the allocation of the net income to the owner's capital account. That is step three. And you can see that we have a lot of zeros down here. What was our objective again? We want to get to this post closing trial balance where everything from the owner's capital on down is zero. We're really close right now, meaning the entire income statement is zero revenue and expenses and we closed out that income summary. So that is now zero. That was part of the goal and we just now need to close out to this draws draws being the only thing that's really not on the income statement that is a temporary account. It's going to be on the equity statement statement of owner's equity. And that's what we need to close out next time. What we've done so far is close out income to the income summary and then we close out the expenses to the income summary. Then we closed out this time net income or the income summary which had net income in it to the capital account. Now next time we're just going to finish this off by closing out draws to the capital account.