Accounting: Closing Entries and Intangible Assets

Income Summary Account Purpose: A temporary account used to facilitate the closing process, consolidating balances of accounts to be closed (revenue and expenses).
Accounts to be Closed: This process applies to all temporary accounts, specifically revenue and expense accounts, to reset them to a zero balance at the end of an accounting period. Examples of expenses mentioned include depreciation expense, salaries expense, rent expense, insurance expense, supplies expense, and utilities expense.

Normal Balance: Expense accounts typically have a debit balance.
Closing Action: To close an expense account, a credit entry is made to that specific expense account, bringing its balance to 0.
Corresponding Entry: The total sum of all closed expense accounts is recorded as a debit to the Income Summary account.
Specific Expense Closures Mentioned:
- An initial expense (unspecified, potentially depreciation) was credited for 300.
- Rent Expense was credited for 1,000.
- Insurance Expense was credited for 100.
- Supplies Expense was credited for 1,050.
- Utilities Expense was credited for 305.
- The sum of these credits to expenses (debited to Income Summary) is later indicated as \$4,365. (Explicitly summed expenses in transcript: 300 + 1,000 + 100 + 1,050 + 305 = 2,755; the 4,365 figure suggests other expenses were also included in the actual closing process.)

Normal Balance: Revenue accounts typically have a credit balance.
Closing Action: To close a revenue account, a debit entry is made to that specific revenue account, bringing its balance to 0.
Corresponding Entry: The total sum of all closed revenue accounts is recorded as a credit to the Income Summary account.
Specific Revenue Closures Mentioned:
- One revenue account was debited for 7,850.
- Another revenue account was debited for 300.
- The total debits to revenue accounts (credited to Income Summary) amounted to 7,850 + 300 = 8,150.

After closing all revenue and expense accounts, the Income Summary account will have a balance representing the net income or loss for the period.
- Total Credits to Income Summary (from revenues): \$8,150
- Total Debits to Income Summary (from expenses): \$4,365
- The difference (Net Income) is: \$8,150 - 4,365 = 3,785
This resulting credit balance of \$3,785 in the Income Summary account signifies a net income.
Closing Income Summary to Retained Earnings: To close the Income Summary account, a debit of \$3,785 is made to the Income Summary account, and a corresponding credit of \$3,785 is made to the Retained Earnings account.
Retained Earnings: This account carries a beginning balance and is increased by net income (or decreased by a net loss and dividends). If a company is sold, the balance of retained earnings is transferred with the company.

Definition: Assets that lack physical form but possess economic value due to the rights or privileges they confer.
Examples: Rights to songs, rights to books, franchises.
Franchise Example: When purchasing a franchise (e.g., McDonald's), one acquires the rights to operate under that brand, not just the physical restaurant assets. A franchise can have a significant cost, such as \$1 \text{ million}, which is recorded as an asset on the company's books.
Amortization vs. Depreciation:
- Tangible assets (like equipment) are depreciated over their useful life.
- Intangible assets are amortized over their useful life.
- Both processes are essentially the same; they represent the systematic allocation of an asset's cost over the period it provides benefits, but the terminology differs based on the asset's tangibility.