Once we've created the trial balance, then the last step is to actually create the reports. The Trial Balance is a list of balances. And we know that they're the right balances as of a particular point in time, then the process of creating the financial reports is pretty simple. It's simply taking the balances for assets and putting them at the top of the balance sheet, the balances for liabilities and putting them at the bottom of the balance sheet, the ones that are for revenue, putting them at the top of the income statement also for expenses, putting them at the bottom of the income statement. Then there's one last step that goes on. If we want to close out period.

If we want to stop recording activity for the last period and start with a brand new sheet of paper for the next period. We're going to record. This is done in most companies. It's done on an annual basis. It's done yearly, that we stop recording things for last year, and we're going to start tracking where things are going to go this next year, the process of doing that is creating what's called closing entries. And when closing entries, all you're doing is you're taking the income statement.

And you're netting out revenue, netting out expenses, taking the difference, and you're putting it into equity on the balance sheet. So now the the income statement accounts become zero. And you're starting over again for a new period. And the impact of history is now reflected just in the balance sheet. So that process is what goes on on a reporting basis. After you create the trial balance produce the financial statements say they're correct.

Then you create closing entries to close out the income statement to start over fresh for the next accounting period.