CLOSING

ENTRY
 A CLOSING ENTRY IS A JOURNAL
ENTRY AT THE END OF AN
ACCOUNTING PERIOD

Temporary Account Permanent Account

Rs.
REVENUES
EXPENSES
Rs.
DIVIDENDS/DRAWI
NGS
TEMPORARY/PERMANENT ACCOUNTS
Temporary Accounts Permanent Accounts
Expense Assets
Revenue Liabilities
Dividends/Drawings Owner’s equity
Income Summary Unearned Revenues
Other Gains & Losses Prepaid Expense

Only temporary accounts are closed at the end of accounting period

Financial Statements are prepared after the closing entries have been
passed.

The reason for the closing entries is to ensure that temporary accounts
begin the next accounting year with a zero balance

The objective is to get the account balance to be zero

There are four closing entries, which transfer all temporary account
balances to the owner’s capital account

Close Revenue accounts to Income Summary Revenue Expense

Close Expense accounts to Income Summary

Income Summary
Close Income summary account to Unappropriated Profits

Close Dividends to Unappropriated Profits Dividends/ Drawings

Unappropriated
Profits
 CLOSING REVENUE ACCOUNTS
• Revenues positively impact capital & increase owner’s equity; it will have a +ve sign attached to it.
• Closing revenue account means a journal entry which makes the balance of revenue account zero
and transfers the former balance of the revenue account into the income summary account.
 CLOSING EXPENSE ACCOUNTS
• Expenses negatively impact capital & decrease owner’s equity; it will have a –ve sign attached to
it.
• All the expenses will be summed and the value of total expenses will be transferred to the Income
summary account.
 CLOSING INCOME SUMMARY
ACCOUNT
• The amount in Income summary account is the result of balance from Expense and Revenue
accounts.
• Closing an income summary account means transferring its balance to the account of
Unappropriated Profits, bringing the income summary account to zero.
• After this closing entry has been posted, the income summary account has a zero balance at the
end of the year.

Income is transferred to R/E

as income summary is
closed
 CLOSING DIVIDENDS/DRAWINGS
ACCOUNT
• Dividends to stockholders are not considered an expense of the business; therefore, they are not
considered in determining net income for the period.
• Since dividends are not an expense, the Dividends account is not closed to the Income Summary
account.
• Instead, it is closed directly to the unappropriated profits account.
• Since dividends/drawings have a natural -ve balance, So they are deducted from the dividends
account, and are added to the account of unappropriated profits.