Question

can someone explain what is and what includes in a closing entries.  and show a closing entries example.

Answer 1

Closing entries are journal entries which are made at the end of an accounting year or period. It includes the shifting of data from temperary accounts on the income statement to the permanant accounts on the balance sheet. All balances of income statements will be eventually transferred to retained earnings in case of a company.

The process of preparing closing entries include 4 steps. They are

a) closing the revenue account- it is done by debiting revenue account and crediting the income summary account

b) closing the expenses account- it is done by debiting income summary account an crediting various expenses account

c) closing the income summary account- for closing this account, it is transfered to retained earnings account

d) closing dividend account- balance in this account is directly transfered to retained earnings account.

An example of closing entry is  

if dividend is declared in a financial year, then on the last day of the financial year the following entry will be passed as closing entry

Retained earnings A/c Dr. xxx

To Dividend A/c xxx

( Being dividend declared during the year transfered to retained earnings account)