Does my software book closing entries?

Most accounting software closes the year automatically: it reports prior-year income as retained earnings without posting a visible entry. The effect is the same entry, computed rather than posted.

Which accounts are closed?

Temporary accounts — revenue, expenses, dividends declared and owner's drawings. Balance sheet accounts are permanent and carry forward.

Journal entry for closing entries

At 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.

Accounts closed: 7
Net income to retained earnings: $2,550
Entity: Northwind Traders, Inc.
Basis: Accrual
Currency: USD
Period: September 2026

The worked example

Northwind Traders, Inc., the company the free course is taught on, finishes September 2026 with the trial balance the course builds. Closing it takes every revenue and expense balance to zero and moves $2,550 of net income into retained earnings. The figures come from that trial balance, not from this page.

Closing entry · September 30, 2026

JE-130 Sep 2026Manualposted

Close revenue and expenses to retained earnings.

Journal entry JE-1, 8 lines
Account	Debit	Credit
4000 Revenue	31,500 US Dollar
5000 Cost of revenue		17,000 US Dollar
6000 Payroll expense		8,400 US Dollar
6200 Rent expense		2,000 US Dollar
6300 Insurance expense		600 US Dollar
6400 Depreciation expense		500 US Dollar
6500 Utilities expense		450 US Dollar
3100 Retained earnings		2,550 US Dollar

Totals	31,500 US Dollar	31,500 US Dollar

Balanced.

What the entries do to the accounts

Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.

Net movement by account
Account	Debit	Credit
3100 Retained earnings		2,550 US Dollar
4000 Revenue	31,500 US Dollar
5000 Cost of revenue		17,000 US Dollar
6000 Payroll expense		8,400 US Dollar
6200 Rent expense		2,000 US Dollar
6300 Insurance expense		600 US Dollar
6400 Depreciation expense		500 US Dollar
6500 Utilities expense		450 US Dollar

Totals	31,500 US Dollar	31,500 US Dollar

Why it is booked this way

Revenue and expense accounts measure one period. Closing them moves the period's result into retained earnings, the permanent account that accumulates every year's profit, and resets the income statement for the next period.

The closing entry is computed, not chosen: each temporary account is reversed for exactly its balance and retained earnings takes the net. If the entry does not balance, the trial balance did not.

Common mistakes

Closing balance sheet accounts.
Posting adjustments to the closed year after the close, so retained earnings no longer agree with the prior year's statements.

Questions

Does my software book closing entries?: Most accounting software closes the year automatically: it reports prior-year income as retained earnings without posting a visible entry. The effect is the same entry, computed rather than posted.
Which accounts are closed?: Temporary accounts — revenue, expenses, dividends declared and owner's drawings. Balance sheet accounts are permanent and carry forward.

Terms on this page

Work with this entry

The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.

An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.