Closing Entries

The last part of any accounting period is to close the accounts by making closing entries in each of the accounting periods. These closing entries are made in all temporary accounts, such as sales and expenses, which will not carry forward to the next period. However, there is no need to make closing entries in accounts such as cash accounts, as the cash balance transfers forwards on the balance sheet.

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The closing process occurs after all the amounts on the temporary accounts have been transferred to either the profit and loss account, for operating accounts, or the retained earnings statement, for dividends and share buybacks. Once the account balances have been transferred, a corresponding journal entry is used to remove the balance, setting the temporary accounts back to zero, ready for the next accounting cycle.

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