Closing entry

Closing entry
See also

Closing entry is made at the end of accounting period. It is the last entry made in the journal before data is moved from temporary accounts to permanent accounts on the balance sheet. The closing entry allows to zero all the temporary accounts.

The procedure of ending accounting period is as follows:

  • transfer all the revenues accounts to income summary,
  • debit revenue accounts,
  • transfer all the expenses accounts to expense summary,
  • credit expense accounts,
  • close income summary (closing entry),
    • if incomes are greater than expenses: debit income summary, credit retained earnings (profit),
    • otherwise: credit income summary and debit retained earnings (loss)
  • close dividents account - debit retained earnings by the amount of dividends and credit dividends account.

Settlement of the period[edit]

According to the quantitative order form, the supplier says to pay for the item immediately after receiving the parcels. However, in practice, it allows you to pay the due amount for items delivered within a certain time. If the outstanding amount is paid within a certain period of time, usually no additional fees are charged. After the expiration of the fixed deadline, interest is accrued.

In this way, the provider actually grants loan to the customer without interest on time to settle the invoice. In the time between delivery and the final repayment date, the customer can sell items and collect income instead of paying off the overdraft. Therefore, delaying the account settlement by the customer up to the last minute allowed by the supplier of the billing period is economically justified.

The result of the delay is the growing order volume, which reduces annual costs. This saving results from the permissible delay in the settlement of payments without interest. However, as a result of increasing the size of orders you have to order less often[1].

Increasing arrears[edit]

Companies that pay after the deadline and the tolerance of employees to late payment are the factors behind the rise of arrears in Russia. Both of them are supported by wages commonly covered.

In rural areas with lower employment rates, concentrated labor markets and more common backlogs in the past, there is usually a higher backlog of workers. In contrast to wage reductions, wage arrears have an ambiguous impact on employee behavior. However, depending on the scope of practice on the local market, this effect is different[2].



  1. Goyal S.K. 1985, p.335-338
  2. Earle J.S. 2002

Author: Anna Zuwała