Closing entries are those entries
which are made at the end of the period to close the temporary accounts and
transfer the balance in to the permanent Account. In other words closing the
temporary account and transfer the balance to the permanent Account.
Temporary Account
During the time of
closing books of accounts, we need to close all temporary accounts such as
income accounts of that period, Expenses Accounts of that period, drawing
account of that period or dividend account of that period etc.
Sales - 2015, sales
- 2016 ,rent in 2015, telephone- 2016,scrap sales-2016,other income-2015 etc
are some of the examples of temporary Accounts.
Income Summary Account
For closing the
books of accounts of particular period , we need to transfer all temporary
accounts in to income summary account and balance of income summary account to
‘’Retained Earnings Accounnt’’.
After doing the
below mentioned journal entries, only assets and liabilities remain in the
books of Accounts.
1) Journal Entry for
transferring sales Account and other income account in to Income summary
Account.
Sales A/C DR XXX
Other Income DR XXX
TO
Income Summary A/C XXX
2) Journal Entry for
transferring Expenses Account in to Income summary Account.
Income Summary A/c DR XXX
TO Salary
expenses XXX
TO Rent Expenses XXX
3) Balance of income
summary Account transferred to Retained
Earnings Account.
4) Journal entry for closing
dividend paid Account to Retained Earnings Account.
Retained Earnings A/c Dr xx
TO Divident paid xxx
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