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Closing Entry: Definition and Meaning
Definition
A closing entry is a period-end journal entry that transfers temporary-account balances, such as revenue and expenses, to retained earnings or another equity account.
Why It Matters
Closing entries prepare temporary accounts for a new reporting period. They help ensure that revenue and expense accounts start the next period at zero while cumulative results are reflected in equity.
The exact closing process depends on the accounting system and legal form of the business. A consistent close process supports accurate historical reporting and more reliable year-end records.
Example
At year-end, a corporation closes revenue and expense account balances into retained earnings.
Related Terms
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