Closing Entries
Journal entries that zero out temporary accounts and transfer balances to retained earnings at period-end.
What is Closing Entries?
Closing entries are journal entries made at the end of an accounting period that transfer balances from temporary accounts — revenues, expenses, and dividends — to retained earnings, resetting those accounts to zero for the next period. They complete the accounting cycle and prepare the books for a new period.
Example
Example
After FY2023, a company with $500,000 in revenue and $400,000 in expenses makes closing entries to zero out those accounts and increase retained earnings by $100,000, ensuring the income statement starts fresh for the next year.