Closing entries

Closing entries
See also

Closing entries (closing journal entries) are accounting entries prepared at the end of a given accounting period. Entries are made in the manual accounting system to transfer balances from temporary accounts (from the income statement) to permanent accounts (on from the balance sheets). In this way, temporary accounts are closed, which is usually called closing the books[1].

Temporary accounts[edit]

Temporary accounts (income statement accounts or nominal accounts) are ledger accounts. They are used to create transaction entries during a single billing period. At the end of this period, temporary accounts are closed or reset using closure entries. It is important not to mix up the amounts from several periods. The zero balance is mostly the starting point for this account in the next billing period. Income statement accounts include all of expense and income accounts. The recording of the amount in the income account observe the accounting activity on these types of accounts. All nominal accounts are finally closed for retained earnings (a company) or owner’s equity (a individual entrepreneurship). In the next step, the data is presented in the balance sheet. Closing a temporary account is possible in two ways[2]:

  • direct closing of retained earnings in the account,
  • closing in an intermediate account (income summary account).

Permanent accounts[edit]

Permanent accounts (real accounts) are ledger accounts unclosed at the end of the accounting period. Real account balances are also available outside of the current billing period. These accounts are included in the balance sheet (accounts of assets, liabilities and capital accounts). The non-zero balance is usually the starting point for this account in the next billing period[3].

Closing entries phases[edit]

Closing entries can be shown in four steps [4]:

  • Transferring all of revenue accounts to income summary.
  • Transferring all of expense accounts to income summary.
  • Closing the income summary account.
  • Closing the dividend account for retained earnings.


  1. Maher M.W., Hermanson R., Edwards J.D. (2011), Accounting Principles: A Business Perspective, CreateSpace Independent Publishing Platform
  2. Williams J.R., Haka S.F., Bettner M.S., Carcello J.V. (2015), Financial & Managerial Accounting: The basic for bussiness decision, McGraw-Hill Education
  3. Scott C.J. (2014), College Accounting: A Career Approach, Cengage Learning
  4. Cunningham B.M., Nikolai L.A., Bazley J., Kavanagh M., Slaughter G., Simmons S. (2011), Accounting: Information for Business Decisions, Cengage Learning


Author: Patryk Schmidt