CLOSING ENTRIES

As we know in accounting cycle we make some temporary accounts like Revenue account, Expense account, and Dividend account. So, at the end of an accounting period it is necessary to close these temporary accounts and make their balances zero. Balances of these temporary accounts can be transferred to an income summary account and Retained earning account, as a result balances of these temporary accounts becomes zero and transferred to permanent accounts. Sequence of the closing entries is, 1. 2. 3. 4. Close revenue accounts to income summary account. Close expense accounts to income summary account. Close income summary account to retained earning account. Close dividend to retained earning account.

Close revenue to income summary

Check your adjusted trail balance you will see revenue accounts with credit balances. At the end of an accounting period you want these balances to become zero, for that you have to debit revenue accounts and credit the income summary account. Date Account xxx Revenue Income summary Debit Credit xxx xxx

Close expense to income summary

At the end of an accounting period you have to close expenses in income summary account to make their balances zero, for that you have to credit all the expense accounts and debit the income summary account. Date Account xxx Income summary Expense Debit Credit xxx xxx

Close income summary to retained earning

After closing revenue and expenses to income summary, if the balance of income summary account becomes credit balance than you have to debit the income summary account and credit the retained earning account, Date Account xxx Income summary Retained earning Debit Credit xxx xxx

And if it becomes debit balance than you have to credit income summary account and debit the retained earning account. Date Account xxx Retained earning Income summary Debit Credit xxx xxx

Close dividend to retained earning

At last we close the dividend or capital withdrawal to retained earning account to close dividend and make its balance zero. Date Account xxx Retained earning Dividend Debit Credit xxx xxx