CLOSING ENTRIES

                         Closing Entries

Introduction:-

                             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. 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.

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.

 1. Close revenue to Income summary:-

                                                                                                      Revenue accounts are closed by transferring their balance to the income summary account. If revenue account balance is $1100 then closing entry would be:

Closing Entry:-

Date	Particulars	Debit	Credit
	Revenue A/c	1100
	Income Summary A/c		1100

2. Close expenses to Income summary:-

                                                                                                        Expenses accounts are closed by transferring their balances to the income summary account. If the expenses account balance is $1200 then the closing entry would be:

Closing Entry:-

Date	Particulars	Debit	Credit
	Income Summary A/c	1200
	Expense A/c		1200

3. Close income summary to retained earnings:-

                                                                                                                                  The income summary account is closed to retained earnings. If the net balance of the income summary account is $800, then the closing entry would be:

Closing Entry:-

Date	Particulars	Debit	Credit
	Retained Earnings A/c	800
	Income Summary A/c		800

4. Close dividends to retained earnings:-

                                                                                                               The dividend account is closed to retained earnings. If $500 in dividend were paid during the period, the closing entry would be:

Closing Entry:-

Date	Particulars	Debit	Credit
	Retained Earnings A/c	500
	Dividend A/c		500