Closing Entries

Definition: Zero out temporary accounts

Scope:BroadDifficulty:Easy

Zero out temporary accounts

Common Journal Entries
AccountDebitCredit
1. Close revenue accounts
Total revenue for the year: $200,000.
Sales RevenueRevenue−$200,000
Income Summary$200,000
Revenue accounts reset to zero.
2. Close expense accounts
Total expenses for the year: $150,000.
Income Summary$150,000
Operating Expenses$150,000
Expense accounts reset to zero.
3. Close Income Summary (profit)
Net income = $200,000 − $150,000 = $50,000.
Income Summary$50,000
Retained EarningsEquity+$50,000
Net income transferred to retained earnings.
4. Close Dividends
Dividends declared: $25,000.
Retained EarningsEquity−$25,000
Dividends$25,000
Dividends account reset; retained earnings reduced.

T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.

Sales RevenueRevenue account — income from selling goods or services. Credits increase the balance. Debits decrease the balance.RevenueIncome earned from business operations. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$200,000.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
Normal bal. ▶
$200,000.00
Income SummaryIncome SummaryAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$150,000.00
$50,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$200,000.00
$0.00
Operating ExpensesOperating ExpensesAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$150,000.00
$150,000.00
Retained EarningsRetained EarningsEquityThe owner’s residual interest in the business. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$25,000.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$50,000.00
Normal bal. ▶
$25,000.00
DividendsDividendsAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$25,000.00
$25,000.00
DurationN/A

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