Closing Entry

In accounting, one of the final entries made at year-end to close accounts and transfer the amounts to financial statements. See also Closed Account.

Journal entry at the end of a period to transfer the net effect of revenue and expense items from the income statements to owners' equity. Entries are for Nominal Accounts and not Real Accounts. At the end of the year, expenses are credited so that zero balances are left in them, and the total is debited to the Income Summary account. Revenue accounts are debited to arrive at zero balances, and the total is credited to the income summary account. The net income or loss that now exists in the income summary account is then transferred to retained earnings. After the closing entries, the new year will start fresh in that no income statement account balances will exist.