Closing Entries & Temporary Accounts

Level: Intermediate Module: Journal Entries & The Ledger 3 min read Lesson 5 of 67

Overview

  • What you’ll learn: The purpose of closing entries, the four closing steps, the Income Summary account, the difference between temporary and permanent accounts, and preparing the post-closing trial balance.
  • Prerequisites: Lesson 4 — The Trial Balance
  • Estimated reading time: 15 minutes

Introduction

The Grand Historian records: At the end of each accounting period, the books must be cleansed — the temporary accounts that tracked this period’s performance must be emptied, their contents poured into the permanent vessel of Retained Earnings. This ritual of closing is as necessary as the annual audit of the imperial treasury: without it, this year’s income would mingle with next year’s, and the chronicles of each period would become an indecipherable muddle.

Closing entries serve one purpose: to reset all temporary accounts (revenue, expenses, dividends) to zero so that the next period begins with a clean slate.

Temporary vs. Permanent Accounts (Review)

Temporary Accounts Permanent Accounts
Revenue accounts Asset accounts
Expense accounts Liability accounts
Dividends / Owner’s Drawings Equity accounts (Capital, Retained Earnings)
Income Summary

Temporary accounts accumulate data for a single period and are closed to zero at period end. Permanent accounts carry their balances forward to the next period.

The Four Closing Steps

Step 1: Close Revenue Accounts to Income Summary

Revenue accounts have credit balances. To close them, debit each revenue account and credit Income Summary.

  Debit:  Service Revenue       $7,700
  Credit: Income Summary        $7,700
  (Close revenue to Income Summary)

Step 2: Close Expense Accounts to Income Summary

Expense accounts have debit balances. To close them, credit each expense account and debit Income Summary.

  Debit:  Income Summary        $4,300
  Credit: Rent Expense          $2,000
  Credit: Insurance Expense     $1,000
  Credit: Wages Expense           $800
  Credit: Depreciation Expense    $500
  (Close expenses to Income Summary)

Step 3: Close Income Summary to Retained Earnings

The Income Summary now shows the net income (or net loss) for the period. Close it to Retained Earnings.

  Income Summary balance: $7,700 - $4,300 = $3,400 (credit = net income)

  Debit:  Income Summary        $3,400
  Credit: Retained Earnings     $3,400
  (Close net income to Retained Earnings)

Step 4: Close Dividends to Retained Earnings

Dividends (or Owner’s Drawings) have a debit balance. Close directly to Retained Earnings.

  Debit:  Retained Earnings     $1,000
  Credit: Dividends             $1,000
  (Close dividends to Retained Earnings)

The Income Summary Account

Income Summary is a special temporary account that exists only during the closing process. It serves as a holding account — revenue flows in, expenses flow in, and the net result flows to Retained Earnings. After closing, its balance is zero, and it disappears until the next closing.

Some organizations bypass Income Summary entirely, closing revenue and expenses directly to Retained Earnings. Both methods produce the same result.

Post-Closing Trial Balance

After all closing entries are posted, prepare a post-closing trial balance. It should contain only permanent accounts (assets, liabilities, equity), and all temporary accounts should show zero balances.

This trial balance is the starting point for the next accounting period.

Key Takeaways

  • Closing entries reset temporary accounts (revenue, expenses, dividends) to zero at period end.
  • Four steps: close revenue to Income Summary, close expenses to Income Summary, close Income Summary to Retained Earnings, close dividends to Retained Earnings.
  • Income Summary is a temporary holding account used only during closing.
  • The post-closing trial balance contains only permanent accounts and serves as the starting point for the next period.
  • Without closing entries, current-period income would be added to next-period income, distorting all future financial statements.

What’s Next

In Lesson 6, you will explore subsidiary ledgers and special journals — the tools that handle high-volume transactions without cluttering the general journal and general ledger.

繁體中文

概述

  • 學習目標：結帳分錄之目的、四個結帳步驟、損益彙總帳戶、臨時與永久帳戶之區別。
  • 先決條件：第 4 課——試算表
  • 預計閱讀時間：15 分鐘

簡介

太史公曰：每一會計期間終了，帳簿須經清洗——追蹤本期績效之臨時帳戶必須清空，其內容傾注入保留盈餘之永久容器。此結帳之儀式，如同帝國庫房之年度審計般不可或缺：無之，今年之收入將與明年相混，各期之編年史將成無法解讀之混沌。

四個結帳步驟

步驟 1：結清收入帳戶至損益彙總

  借：服務收入       $7,700
  貸：損益彙總       $7,700

步驟 2：結清費用帳戶至損益彙總

  借：損益彙總       $4,300
  貸：租金費用       $2,000
  貸：保險費用       $1,000
  貸：薪資費用         $800
  貸：折舊費用         $500

步驟 3：結清損益彙總至保留盈餘

  借：損益彙總       $3,400
  貸：保留盈餘       $3,400

步驟 4：結清股利至保留盈餘

  借：保留盈餘       $1,000
  貸：股利           $1,000

重點摘要

  • 結帳分錄於期末將臨時帳戶歸零。
  • 四步驟：收入結至損益彙總、費用結至損益彙總、損益彙總結至保留盈餘、股利結至保留盈餘。
  • 損益彙總為結帳過程中使用之臨時帳戶。
  • 結帳後試算表僅含永久帳戶。

下一步

在第 6 課中，您將探索明細分類帳與特種日記帳。

日本語

概要

  • 学習内容：締切仕訳の目的、4つの締切ステップ、損益勘定、一時勘定と永久勘定の区別。
  • 前提条件：レッスン4——試算表
  • 推定読了時間：15分

はじめに

太史公曰く：各会計期間の終わりに、帳簿は清められねばならない——当期の業績を追跡した一時勘定は空にされ、その内容は利益剰余金という永久の器に注がれる。この締切の儀式なくして、今年の所得は来年と混ざり合い、各期の年代記は解読不能な混乱と化す。

4つの締切ステップ

ステップ1：収益勘定を損益勘定に締切

  借方：役務収益     $7,700
  貸方：損益         $7,700

ステップ2：費用勘定を損益勘定に締切

  借方：損益         $4,300
  貸方：地代家賃     $2,000
  貸方：保険費用     $1,000
  貸方：給与費用       $800
  貸方：減価償却費     $500

ステップ3：損益勘定を利益剰余金に締切

  借方：損益         $3,400
  貸方：利益剰余金   $3,400

ステップ4：配当を利益剰余金に締切

  借方：利益剰余金   $1,000
  貸方：配当         $1,000

重要ポイント

  • 締切仕訳は期末に一時勘定をゼロにリセットする。
  • 4ステップ：収益を損益へ、費用を損益へ、損益を利益剰余金へ、配当を利益剰余金へ。
  • 損益勘定は締切プロセスでのみ使用される一時勘定。
  • 締切後試算表は永久勘定のみを含む。

次のステップ

レッスン6では、補助元帳と特殊仕訳帳を学ぶ。

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