O.E. = Capital – Drawings + Revenue - Expenses Closing Entries A Step-by-Step Guide by Mr. Meechem We must close accounts to update capital balance and reset temporary accounts for next fiscal period. O.E. = Capital – Drawings + Revenue - Expenses

Real Accounts Have balances that continue into the next fiscal period Ex. Bank, Accounts Receivable, Truck, Supplies, Loan Payable etc

Nominal/Temporary Accounts Have balances that do not continue into the next fiscal period Revenues Expenses Drawings

Income Summary In order to do closing entries and update our capital balance, we create a new temporary account called Income Summary just for the closing process.

Steps for Closing Close Revenue Accounts to Income Summary. Close Expense Accounts to Income Summary Close Income Summary to Capital Close Drawings to Capital