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Closing Entries – Recap

What are Closing Entries?

  • Transfer balances of temporary accounts (Revenue, Gains, Expenses, Losses) to permanent accounts.
  • Reset temporary accounts to zero for the next accounting period.

Types of Temporary Accounts

CategoryExample
RevenueSales Revenue, Service Income
GainsSale of Fixed Asset (gain)
ExpensesRent, Salaries, Depreciation
LossesLoss on Sale of Asset

Standard Journal Formats

1. Close Revenue & Gains

Dr. Sales Revenue          8,00,000
    Cr. Profit & Loss Account          8,00,000

2. Close Expenses & Losses

Dr. Profit & Loss Account  1,25,000
    Cr. Rent Expense                     30,000
    Cr. Salaries Expense                 80,000
    Cr. Depreciation Expense             15,000

3. Transfer Net Profit/Loss to Capital

  • Net Profit: Dr. Profit & Loss Account → Cr. Capital
  • Net Loss: Dr. Capital → Cr. Profit & Loss Account

Quick Checklist

  • All revenue and gain accounts are debited and transferred to P&L.
  • All expense and loss accounts are credited and transferred to P&L.
  • Net profit/loss is moved to Capital/Retained Earnings.
  • Temporary accounts now show a zero balance.

Mini‑Quiz

Test Your Knowledge

Question 1 of 2

1. Closing entry for an expense account uses:

Debit Expense, Credit Profit & Loss
Credit Expense, Debit Profit & Loss
Debit Expense, Credit Capital
Credit Expense, Debit Capital

💡 Final Wisdom: "Closing entries are the final brush‑stroke of the accounting period – they paint your profit onto the equity canvas and wipe the slate clean."

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