How, when and why do you prepare closing entries?

how?

1. Close all income accounts to Income Summary
2. Close all expense accounts to Income Summary
3. Close Income Summary to the appropriate capital account
4. Close withdrawals to the capital account/s (this step is for sole proprietorship and partnership only)

Thanks for invitation,

Closing Entries are prepared for income and expenses journal accounts at the end of financial period to be able to post its outstanding balance to the "Income Statement".

Closing entries are the journal entries made at the end of the accounting period to ascertain the exact expenses / incomes.