Closing entry
In accounting, closing entry means the year-end entry that zeroes every temporary account — revenue, expense, gains, losses, dividends or drawings — into retained earnings, so the new year's P&L starts at nil. Most ledger software performs it virtually.
- Layer
- Lexicon
- Defined in
- Lexicon
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Not a rule
Bookkeeping mechanic — not codified. US GAAP governs recognition, measurement and presentation — not the mechanics a bookkeeper uses to get there. Anyone citing a standard for this word is citing the wrong thing.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- adjusting entry
- reversing entry
Nearby in the catalog
No component names this concept outright. These are the ones in its part of the system, which is a weaker claim — but a component nothing links to is a component nobody finds.
Terms this one depends on
- Retained earningsAccumulated net income not distributed to owners — where the P&L lands on the balance sheet
- Temporary accountAn account that measures one period only — revenue, expense, gain, loss, dividends declared — and is closed to retained earnings at year end
- AccountA GL account in the chart of accounts. Always qualify when a bank account is meant.
- ExpenseOutflows or using up of assets, or incurrences of liabilities, from delivering goods or services — recognized when incurred, not when paid
- RevenueInflows or enhancements of assets, or settlements of liabilities, from delivering goods or services — recognized when control transfers, not when cash arrives
Also in Close
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Adjusting entry vs closing entryAdjusting entries are made at period-end to put revenue and expenses in the right period; closing entries are made at year-end to move the period's revenue and expense balances into retained earnings.Compare
- Journal entry for dividendsWhen dividends are declared, debit Dividends declared (or Retained earnings) and credit Dividends payable. When paid, debit Dividends payable and credit Cash. At year-end, close Dividends declared to Retained earnings.Entry
- Journal entry for an owner's drawFor a sole proprietorship or partnership, debit Owner's drawings and credit Cash when the owner takes money out. At year-end, close drawings to capital: debit Owner's capital, credit Owner's drawings. A contribution is the reverse: debit Cash, credit Owner's capital.Entry
- Journal entry for closing entriesAt the end of the fiscal year, debit every revenue account for its credit balance, credit every expense account for its debit balance, and take the difference — net income — to Retained earnings. Revenue and expense accounts start the new year at zero.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.