What is Closing Entry?
A closing entry is an accounting term that refers to journal entries made at the end of an accounting period to close temporary accounts. The purpose of closing entries is to transfer the balances from temporary accounts (revenues, expenses, dividends, and withdrawals) to a permanent account (retained earnings or owner’s equity). This process resets the balances of the temporary accounts to zero, preparing them for the next accounting period and accurately reflecting the financial performance and position of the company.
Table of Content
- What are Temporary Accounts?
- What is Income Summary?
- What are Permanent Accounts?
- How to Record a Closing Entry?
- Example of Closing Entry
- Conclusion
- Closing Entry – FAQs
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