Closing Entry

Loading the player...

What is a 'Closing Entry'

A journal entry made at the end of the accounting period. The closing entry is used to transfer data in the temporary accounts to the permanent balance sheet or income statement accounts. The purpose of the closing entry is to bring the temporary journal account balances to zero for the next accounting period, which aids in keeping the accounts reconciled.

BREAKING DOWN 'Closing Entry'

As with all other journal entries, the closing entries are posted in the general ledger. After all closing entries have been finished, only the permanent balance sheet and income statement accounts will have balances that are not zeroed. For example, revenue, dividend, or expense accounts are temporary accounts that need to be zeroed off and the balance transfered to permanent accounts.

The sequence of the closing process and the associated closing entries is:

1. Close revenue accounts to income summary, by debiting revenue and crediting income summary.
2. Close expense accounts to income summary, by debiting income summary and crediting expense.
3. Close income summary to retained earnings, by debiting income summary and crediting retained earnings.
4. Close dividends to retained earnings, by debiting retained earnings and crediting dividends.

RELATED TERMS
  1. Account Activity

    A banking term that refers to any activity that creates a debit ...
  2. Debit

    An accounting entry that results in either an increase in assets ...
  3. Journal

    1. In accounting, a first recording of financial transactions ...
  4. Account History

    All activity within an account, usually since inception. In a ...
  5. Account Statement

    A periodic summary of account activity with a beginning date ...
  6. Due From Account

    An asset account in the general ledger that indicates the amount ...
Related Articles
  1. Economics

    What Does Debit Mean?

    Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
  2. Economics

    Explaining Double Entry Accounting

    Double entry is an accounting and bookkeeping term describing the method of entering transactions into the accounting records.
  3. Forex Education

    Accounting Basics: The Accounting Process

    By Bob Schneider As implied earlier, today's electronic accounting systems tend to obscure the traditional forms of the accounting cycle. Nevertheless, the same basic process that bookkeepers ...
  4. Credit & Loans

    What is an Account Balance?

    An account balance represents the total amount of money in a financial account at any given moment.
  5. Forex Education

    Accounting Basics: The Basics

    By Bob Schneider The Difference Between Accounting and Bookkeeping Bookkeeping is an unglamorous but essential part of accounting. It is the recording of all the economic activity of an organization ...
  6. Executive Compensation

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  7. Forex Education

    Accounting Basics: Financial Statements

    By Bob Schneider Financial statements present the results of operations and the financial position of the company. Four statements are commonly prepared by publicly-traded companies: balance ...
  8. Savings

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  9. Economics

    What Is The Balance Of Payments?

    The balance of payments helps countries to track how much money is coming in and how much money is going out. Learn more about BOPs here.
  10. Options & Futures

    Demystification Of Bank Accounts

    Find out which type of account suits your specific needs.
RELATED FAQS
  1. What is double entry bookkeeping and how does it work in the general ledger?

    Learn about the double entry method of bookkeeping and how it works in the general ledger. Every accounting transaction has ... Read Answer >>
  2. What's the difference between the general ledger and a general journal?

    Keeping records for most organizations require a double-entry bookkeeping system, which revolves around transactions in the ... Read Answer >>
  3. Do dividends go on the balance sheet?

    Learn about dividends and which accounts on a company's balance sheet they affect, such as cash, shareholders' equity and ... Read Answer >>
  4. Why is there controversy over the use of the information ratio?

    Understand the effect that stock dividends have on a company's retained earnings account and how large and small dividends ... Read Answer >>
  5. How is an accrued interest entry made in accounting?

    Learn how to create common journal entries for accrued interest, including adjusting entries and delayed bond issues sold ... Read Answer >>
  6. Does the balance sheet always balance?

    Yes, a balance sheet should always balance. The name "balance sheet" is based on the fact that assets will equal liabilities ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center