 Hello, in this presentation, we will be looking at a one-step closing process. In other words, we will be closing out temporary accounts using one journal entry. There's a few different ways that we can perform the closing process, and there's benefits and cons to each way of doing it. The one-step closing process is the simplest way to do it, and it's also a way that we can imagine what is happening within the closing process as easily as possible, a skill useful when considering what's happening from time period to time period and how the financial statements are working. So here we're going to look at a one-step closing process. Remember what the closing process is. It's going to be a process at the end of the time period that we will be performing. It's kind of the last step in the accounting cycle. It's really preparing for the next time period. So we had our adjusted trial balance. This happens right after we have our normal day-to-day journal entries, which are bills, invoices, checks. Then we have the unadjusted trial balance. Then we make our end-to-period adjustments to create the adjusted trial balance. And we use this to generate the financial statements. That's the end result. Once we have those financial statements, then we have the closing process, which is set up to set up the next time period. So we can think of the closing process, and it's a good idea to think of it in this one-step process intuitively, because a lot of software will actually do the closing process for us. So it will be an automated format. But when we print reports to report, we need to understand when we see these reports doing things what is happening in terms of that closing process. And it's easiest to think of that in one big journal entry, this kind of one-step process. So the unadjusted trial balance looks like this. It's got the temporary accounts down here. And what we're trying to do is get to the post-closing trial balance, meaning we're trying to close out all the temporary accounts and close them out to the owner capital account. Therefore, the adjusting journal entries and the post-closing trial balance, the adjusted trial balance, and the post-closing trial balance are exactly the same all the way down from assets to liabilities and differ when we get to the equity section in the case of a sole proprietor here, in the case of capital account. Our capital account in the post-closing is including all of these accounts down here which are broken out on the adjusted trial balance. And so that's what our goal is when we do the closing process. We're just trying to get from this point to this point. And that's what we can imagine. We can say, hmm, that's what we're trying to do. And we want to see that. We want to visualize that. We want to understand that. And it's easy to do so when we see the trial balance because we can see that all the temporary accounts are below the equity account. Those are all the accounts we need to make go to zero. So when you're remembering all temporary accounts, you can kind of say, hmm, that's going to be everything from the income statement down plus draws or dividends if it was a corporation. So to do that, we can just start building our journal entry. We can say, here's our adjusted trial balance. And we can say, what do we need to do in order to get this adjusted trial balance all the temporary accounts down to zero? All the accounts below the capital account, we need to make zero. So I'm just going to start creating a journal entry based on this information. So this first draws has a debit balance. Therefore I'm just going to start making our journal entry. We're going to credit the draws here. And if we post that as we go, we're not completed with the journal entry. We only have one transaction, one account so far. But if we credit 5,000, then if we post that 5,000, we will bring that account down. So that's what we're going to do. Whatever we need to do to make all these temporary accounts go down to zero. And then we'll figure out what to do from there. Note, as we go through this process, that we're not really thinking about putting the debits first right now. We will go back and decide if we want to put all the debits on top and the credits on the bottom. At this point in time, we're making the journal entry to best be able to make it in the most efficient and quickest way. And we also want to be able to go back to it and understand it in the best most efficient way. So we're out of balance of course now by the 5,000 until we complete recording this. Next account is revenue or income. It has a credit of 332-250 represented by the brackets. We need to do the opposite thing to it to make it to go down, which in this case will be a debit. So we're just going to be creating our journal entry as we go. We made a second account here. We're going to debit revenue for whatever we need to, whatever is in there, to make it go down to zero. Once we then post that, we'll have the credit here, the debit matching out to it, bringing the balance down to zero. We're still out of balance, but we are achieving our goal. We're just building our big journal entry, our big one step journal entry up top. Next we have the wages expense, which has the 195-870. It is an expense. All expenses will have a debit balance. We need to make it go down by doing the opposite thing to it, which in this case will be a credit. So it's a debit represented by not having any brackets. We're going to do the opposite thing to it in our journal entry. We're going to put the wages, indent it, put a credit 195-870. When we then post that, it'll bring the 195-870 down by 195-870 debit and a credit being the opposite bringing the balance down to zero. So we're just creating whatever we need to do in order to make these accounts go down to zero. We're still out of balance. We're going to move on to utilities now. Utilities, an expense. Notice everything down below this is going to be expenses. So we'll see a familiar pattern here. It's got 42,375 in it. It's a debit represented by no brackets. We're going to do the opposite thing to it in order to make it go down. Therefore, we're going to credit utilities expense. So here's utilities expense. We're going to post it here, and that's going to credit it, bringing the balance down to zero. Just building our journal entry. Next, we're going to go to insurance. Here's insurance expense up top. I'm sorry, here's the insurance expense down here. It's got $1,000 in it, also an expense. Also, therefore, a debit balance. We need to make it go down. So within our journal entry, we're going to do the opposite thing to it, and we're going to credit the expense for the 1,000. By the way, you might be wondering, note that throughout prior presentations, we said that expenses only go up with a debit. And income only goes up with a credit, typically. Meaning revenue really only goes one way. We earn revenue. We don't typically not or earn negative revenue. And expenses only go one way. All these things like wages, utilities, insurance, we only pay them. They don't typically pay us. The exception to that rule, or then kind of like the resetting, it's not really an exception, is that when we do the closing process, of course, we need to make these go down to zero. But it's not like they're going down. Really, what's happening is we're just resetting the clock. We're trying to set the timer to set a different time period that we are recording to. So that's why we are doing the obvious should look funny, because we never really credit wages expense, or utilities expense, or insurance expense, or debit revenue, only during the closing process, or some unusual circumstance. So that's going to bring this down to zero. Next, we're going to go to supplies. So here's supplies. It's got 2,925 in it. We're going to make it go down by doing the opposite thing to it, which in our case is a credit. So we're going to credit the supplies account with a bracket in the credit column, post that over here, and that's going to make the balance go down to zero. Last one, depreciation expense, got 1,100 in it. It's an expense, therefore having a debit balance. We're going to do the opposite thing to it, a credit. So we're going to credit depreciation expense by that 1,100. Posting that out brings the balance down to zero, and there we have this information. So now, of course, we're still out of balance, meaning our debits do not equal the credits. We're going to think about, hmm, what do we want to do next? If we see that from a journal entry format, this is what we have. We've got debits. If we sum up the debits, they add up to 332,250. If we add up the credits, 5,000 plus 195, 870 plus 42 is 375 plus 1,000 plus. 2,925 plus 1,100 is 248 to 270. So the 332,250 minus the 248,270, the debits minus the credits mean, we have a difference of 83,980. That's what we need, in other words, in order to make the debits equal the credits. So if we put that on the credit side, we'll be in balance. So now we've got these credits, we'll add up to the debits of 332,250 each. So of course, then we just need to know what account that will be. And what we're going to be doing is closing all of this out to the capital account. So we're closing everything out to the capital account. That's going to be our final journal entry. Let's see if we post that. Then the plug here that we just put in was to the capital account. And it's going to go to the owner's capital here, increasing the owner's capital. Now this is the step that's a little bit confusing to us because when we look at a two step or a four step type process, we'll see what exactly is being included here in steps, meaning we'll see net income going in here and then draws. So what does this include? It includes the entire income statement, which is revenue minus expenses. So the credits minus the debits is 88,980. That is net income. That's part of this number, 88,980. But we also included the other temporary account, which is an owner's equity account, and that's draws. So draws also close it out. So we've got net income minus the amount of draws, which is this 88,980, which we put here, which is a net increase. Net income brings this amount up. Draws brings this amount down, just like the statement of owner's equity. So this process is comparable to the statement of owner's equity, where we in essence, increase capital by net income, all of the revenue minus the expenses, meaning it went up net. All of this made it go up by 88,980. And then we recorded the draws, which was the final component, which brings the capital account down by the 5,000. That's how we get this 83,980. So this is gonna be the final journal entry, where we could rearrange it. Note when we look up here, we said that we didn't put all the debits on top and the credits on the bottom. It's not necessary to do that, and it's even might not be desirable to do that, because it might be easier to go back and look at this journal entry and say, I know what I did here. I know I just took these accounts and put them in order. But if we want the debits on top just for formatting purposes, then we could just put the revenue on top and then start with the draws going down. The reason we didn't do that up here is because we just started in order. We said draws first and just went straight down, and that's the easiest way to think about it when posting to a worksheet. And then we can go back and just reformat this and put the revenue on top. Then draws, then all the expenses, followed by the capital account.