1 Closing Process: 2 Purpose: The closing process accomplished two purposes a. transfers net income to Retained Capital as the Retained Capital account is updated for the earnings of the year. The amount of farm earnings earned year after year will add to the value of the Retained Capital account while an operating loss will deduct from the Retained Capital account balance B b. The closing process resets the balance in the temporary accounts (Equity, withdrawal, revenue and expense accounts) to zero (0)0 so that the balances for next year are zero (0) 4 5 5 Temporary Accounts 7 these accounts are closed to zero (0) dollars at the end of each year. Their balances do not carry over year to year 3 (Equity-non Retained Capital accounts Revenues, Expenses, Gains, Losses) 9 0 Permanent Accounts 1 these accounts have their balances carryover from one year to the next 2 (Assets, Liabilities, and Retained Capital) 3 4 Steps to the Closing Process: 5 1. Close all income statement accounts with credit balances to Retain