Prerequisites
Identify debit and credit balances, add account totals and distinguish capital, revenue, expenses and drawings. Use only these fictional records, not real financial accounts.
Read debit and credit as account sides, not good and bad. This sole-owner model closes Revenue to Income Summary: debit Revenue, credit Income Summary. Close each Expense with a credit and debit Income Summary for their total. A remaining credit in Income Summary is profit: debit it and credit Owner Capital. Close Drawings separately: debit Owner Capital, credit Drawings. Cash, other assets and liabilities carry forward; closing does not pay bills or erase old entries.
Worked example
Separate example: Revenue has credit 60 and Expense has debit 25. Debit Revenue 60 / credit Income Summary 60; debit Income Summary 25 / credit Expense 25. The summary now has credit 35. Debit Income Summary 35 / credit Owner Capital 35. Debit Owner Capital 5 / credit Drawings 5. Capital moves from credit 100 to credit 130; temporary balances become zero.
Paper Kite Workshop / End of September
Use fictional dollars and these adjusted balances before closing: Cash debit 210; Equipment debit 90; Accounts Payable credit 50; Owner Capital credit 200; Service Revenue credit 90; Rent Expense debit 20; Supplies Expense debit 10; Drawings debit 10. Income Summary starts at zero. All adjustments and financial statements are complete. There are no other accounts or new transactions. Use the four-step Income Summary method. The owner withdrawal was already recorded; do not pay it again.