Notes

Closing entries are journal entries made at the end of the accounting period to close all temporary accounts. These temporary accounts balances are transferred to the permanent accounts. Revenue & expense accounts & dividend accounts are temporary accounts that are closed with the permanent accounts. The stages involved in their balance transfer include,

a ) Close all revenue & expense accounts by transferring their balance to INCOME SUMMARY

b ) Close Income Summary by transferring it to the Retained Earnings Account

c ) Similarly, close Dividends Account by transferring its balance to the Retained Earnings.

The main purpose of passing closing entries is to close all the temporary accounts specially the Income & Expenses account, so that all the remaining accounts with balances can be reflected in the Balance Sheet or the Statement of Financial position. There should remain no balance in any revenue and expense accounts, and first we transfer all these balances to Income Summary & then close this Income Summary Account with Retained Earnings Account.