Closing entry
A closing entry is an end-of-period journal entry that transfers the balances of all temporary accounts — revenues, expenses and drawings — into retained earnings, resetting them to zero for the next accounting period.
FrameworkAccounting cycle
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A firm earns €80,000 in revenue and incurs €55,000 in expenses for the year. Closing entries debit Revenue and credit an Income summary account with €80,000, then debit Income summary and credit Expenses with €55,000. The €25,000 net profit remaining in Income summary is then credited to Retained earnings, so every temporary account starts the next period at zero.
Where it fits
SubjectFinancial AccountingAdvancedTopicDouble-Entry & the Bookkeeping CycleAdvanced
Check yourself
PracticeCORE
After all closing entries have been posted at the end of an accounting period, which of the following account balances will be zero?
Select an answer to check your understanding.