They zero-out the balances of temporary accounts during the current period to come up with fresh slates for the transactions in the next period. The closing entry entails debiting income summary and crediting retained earnings when a company’s revenues are greater than its expenses. The income summary account must be credited and retained earnings reduced through a debit in the event of a loss for the period. You can do this by debiting the income summary account and crediting your capital account in the amount of $250. This reflects your net income for the month, and increases your capital account by $250. Permanent accounts track activities that extend beyond the current accounting period. They’re housed on the balance sheet, a section of financial…

These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). You close income and expense accounts at the end of each tax year. You keep asset, liability, and net worth accounts open on a permanent basis. Expenses are the costs you incur (other than the cost of inventory) to carry on your business. Inventories include goods held for sale in the normal course of business. You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. The most common forms of business are the sole proprietorship, partnership, and corporation. An accounting method is a set of rules used to determine when and how…