Definition of Closing Entries
Closing entries occur at the end of an accounting year to transfer the balances in the temporary accounts to a permanent or real account. The intended result is for each temporary account to begin the next accounting year with a zero balance.
The temporary accounts include the income statement accounts (revenue, expense, gain, loss, income summary) and also the drawing account of a sole proprietorship. The balances in these accounts will ultimately end up in the sole proprietor’s capital account or the corporation’s retained earnings account.
Accounts that are Debited in the Closing Entries
The following temporary accounts normally have credit balances that require a debit as part of the closing entries:
- Revenue accounts
- Gain accounts
- Contra expense accounts
Income Statement: Retail/Whsle – Corporation, Multiple-Step
Statement of Owner’s Equity: Sole Proprietor
