Answer
Companies generally prepare closing entries directly from the adjusted balances in the ledger. They could prepare separate closing entries for each nominal account. The four basic steps in the closing process are:
- Debit each revenue account for its balance, and credit Income Summary for total revenues.
- Debit Income Summary for total expenses, and credit each expense account for its balance.
- Debit Income Summary and credit Owner's Capital for the amount of net income.
- Debit Owner's Capital for the balance in the Owner's Drawings account, and credit owner's Drawings for the same amount