Closing Entries
A permanent account carries balance forward to the next period, while a temporary account resets to zero at the end of the period.
Temp - PermRED ALERevenue, Expense, Dividend - Asset, Liability, EquityRelated: Adjusting entry
Entry to reset temporary accounts to zero by transferring their balances to Retained Earnings.
The entry is created after the Income Statement, and before the Balance Sheet, as otherwise there will be nothing to display.
Example Closing Entry
Considering the following adjusted trial balance at the end of the period:
| Account | Debit | Credit |
|---|---|---|
| Cash | $5 | |
| Revenue | $15 | |
| Expense | $5 | |
| Dividends | $5 | |
| Total | $15 | $15 |
We make the following closing entry:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Dec 31, 2023 | Revenue | $15 | |
| Retained Earnings | $5 | ||
| Expense | $5 | ||
| Dividends | $5 |