CLOSING ENTRIES

NATURE OF CLOSING ENTRIES

• Closing entries
Are journal entries that bring temporary accounts to zero balance and
transfer their balances to the permanent capital account.
At the end of the accounting period, after effecting the correcting
and/or adjusting entries, accountants close all nominal and temporary
accounts in order to prevent the mixing of revenues, expenses and
withdrawal accounts of one period to the next accounting period.
• Temporary or Nominal accounts
Are called temporary because they are only used within one accounting
period and their related amounts are not to be carried forward to the
next accounting period.
Temporary accounts include all income statement account (revenues
and expenses) and withdrawal accounts (owner’s drawings).
• Permanent accounts
Carry forward their ending balances to the next accounting period.
These accounts are known as real accounts because of their continuing
nature. They comprise items in the Statement of Financial Position or
Balance Sheet.
Income Summary Account
• Income Summary Account
Is used as another temporary account in which revenue and expenses
accounts are initially closed to determine whether the business
operations resulted to income or loss. Also known as the “Revenue and
Expense Summary.”
The difference of income summary account representing revenue
accounts and the expense accounts may represent either the net income
or net loss for a given period.
There is net income if the income summary account representing
revenue is greater than the income summary account representing
expense.