Closing entries are the journal entries that are given to transfer the balances of all nominal accounts to the final account to determine the financial results of the organization at the end of an accounting period. Transactions related to the nominal account which are completed during a specific accounting period, their balance has to be completed in the corresponding accounting year. They will not have any balance in the next year. The journal entries that are transferred to the income statement to close the income and expenditure accounts are called closing entries.
Rules for Closing Entries
1. Adjusting entries must be made before closing entries are made.
2. The balance of the accounts that will be closed must be determined whether the balance is debit or credit.
3. Closing entry to close all expense and losses accounts.
Income Summary Dr.
All revenue expense/loss Cr.
4. Closing entries of all income and profits
All revenue Incomes/Gains Dr.
Income Summary Cr.
5. Closing entry for Profit
Income summary Dr.
Capital Cr.
6. Closing entry for Loss
Capital Dr.
Income Summary Cr.
7. To close withdrawals of sales in trading business
Capital Dr.
Withdrawal Cr.
8. For PLC organization dividend accounts closing entry
Retained Earing Dr.
Dividend Expense Cr.
More Resources
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