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A closing entry is an accounting process performed at the end of an accounting period to transfer the balances of temporary accounts, such as revenues, expenses, and withdrawals, to permanent accounts, like retained earnings or net assets. This procedure resets the temporary accounts to zero so they are ready to accumulate information for the next period. Closing entries ensure that only current period activity is reported in the income statement, while cumulative results are reflected in the balance sheet. The process involves four main steps: closing revenues to income summary, closing expenses to income summary, closing income summary to retained earnings or net assets, and closing withdrawals or distributions to retained earnings or net assets.
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A closing entry is an accounting action that transfers balances from temporary accounts to permanent accounts at the end of an accounting period.
They reset temporary accounts to zero so you can track financial activity by period and ensure accurate reporting.
Closing entries are typically made at the end of each fiscal year or accounting period.
Aplos automates the closing entry process, making it easy for nonprofits to reset accounts and produce accurate reports.
If not made, temporary account balances will carry over, leading to inaccurate financial statements and confusion in future periods.