The closing procedure in accounting is carried at the end of each and every accounting period. In this procedure all the journal entries are flushed that were being used to maintain temporary accounts and all the authentic information such as balance is shifted to the permanent account regarding that entry. As a result of closing entries all the temporary accounts are reset and ready to be used in the next accounting period. The closing procedures involves following actions to be undertaken:-
- All the revenue accounts are debited and income summary account is credited as a result all the balance in revenue accounts us cleared out
- All the expense accounts are credited and as a result the income summary account us debited that will result in clearing all the balance in expense account
- The income summary account is closed as tagging it as retained earnings account. If there is some profit during the closing procedure then the income summary account is debited and the retained earnings account us credited. On the other hand if there is some loss during this period then the income summary account is credited and retained earnings account is debited.
The major objective of the closing procedure is to move the net profit or net loss to the retained earnings account. The net profit or the net loss then appears in the stock holder equity section of the balance sheet of the business. An exception to this procedure is income account that is directly closed to retained earnings without surpassing the income summary account.
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