CLOSING ENTRIES Meaning and
Definition
-
Closing entries are the final journal entries made at the end of an accounting period to transfer the balances of temporary accounts into permanent accounts. These temporary accounts include revenue, expense, and withdrawal accounts, which are used to track the income, expenses, and owner's withdrawals over a specific period.
The purpose of closing entries is to reset these temporary accounts to a zero balance at the end of the accounting period. By doing so, the company starts each period with a clean slate.
To achieve this, closing entries involve an intricate process that includes debiting the revenue accounts and crediting the expense accounts to transfer their balances to the income summary account. The income summary account acts as a temporary holding account that represents the net income or loss for the period. Subsequently, the income summary account is debited or credited to transfer the net income or loss into the retained earnings account. Lastly, the withdrawal account is closed by debiting the owner's capital account and crediting the withdrawal account.
Completing closing entries is essential for accurate financial reporting and adherence to the matching principle of accounting. It enables businesses to summarize their financial performance for specific accounting periods and prepares them for the next reporting cycle. In this way, closing entries facilitate the determination of net income or loss, the calculation of retained earnings, and the overall financial analysis of a company.
Common Misspellings for CLOSING ENTRIES
- xlosing entries
- vlosing entries
- flosing entries
- dlosing entries
- ckosing entries
- cposing entries
- coosing entries
- clising entries
- clksing entries
- cllsing entries
- clpsing entries
- cl0sing entries
- cl9sing entries
- cloaing entries
- clozing entries
- cloxing entries
- cloding entries
- cloeing entries
- clowing entries
- closung entries
Etymology of CLOSING ENTRIES
The word "closing entries" has its etymology rooted in accounting. The term "closing" refers to the final step in the accounting cycle, where temporary accounts, such as revenues and expenses, are closed or reset to zero in order to prepare the books for the next accounting period.
The word "entries" in this context refers to the recording of financial transactions in the accounts. Entries are made in the general ledger to document and summarize these transactions.
Therefore, "closing entries" is derived from the combination of the word "closing" to describe the process and the word "entries" to signify the recording of financial transactions in the accounts during this process.
