Only revenue, expense, and dividend accounts are closed—not asset, liability, Common Stock, or Retained Earnings accounts. The four basic steps in the closing process are: Closing the revenue accounts—transferring the credit balances in the revenue accounts to a clearing account called Income Summary.

Are closing entries journal entries?

A closing entry is a journal entry made at the end of the accounting period. It involves shifting data from temporary accounts on the income statement to permanent accounts on the balance sheet. All income statement balances are eventually transferred to retained earnings.

Are closing entries necessary for permanent accounts?

Permanent accounts are not part of the closing process. Temporary (nominal) accounts are accounts that are closed at the end of each accounting period, and include income statement, dividends, and income summary accounts.

Is unearned revenue included in closing entries?

Income that has been generated but not earned, aka unearned revenue, is not included on the income statement and is considered a liability.

Why do I need to journalize my closing entries?

Closing entries also set the balances of all temporary accounts (revenues, expenses, dividends) to zero for the next period. If the process is the same, why do we need to review it? We have many new accounts learned for a merchandiser and we want to see how they fit into the closing process.

What is the Retained Earnings Account balance in the closing journal entry?

The retained earnings account balance of 6,800 is the amount brought forward from the previous accounting period, and for the sake of this example, the other balance sheet (permanent accounts) are shown as one balance, as they are not part of the closing journal entries process.

How is the preparation of closing entries explained?

The preparation of closing entries is a simple four step process which is briefly explained below: Transfer the balances of all revenue accounts to income summary account. It is done by debiting various revenue accounts and crediting income summary account. This step closes all revenue accounts.

When do you close a journal entry for a temporary account?

Closing journal entries are used at the end of the accounting cycle to close the temporary accounts for the accounting period, and transfer the balances to the retained earnings account. A temporary account is an income statement account, dividend account or drawings account.