Closing Entry Process
What is the closing entry process?
The closing entry process is the set of journal entries a firm makes at the end of a period to move temporary accounts, revenue and expenses, into retained earnings and reset them for the next period.
Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that runs the closing entries with a documented checklist, so each period starts with clean balances.
Steps in the process
- Close revenue and expense accounts to a summary account
- Move the net result to retained earnings, see retained earnings
- Close owner draws or dividends to equity and run a post-closing trial balance, see trial balance
A worked example
The figures below are illustrative. A firm closes the year with $900,000 of revenue and $780,000 of expenses. The closing entries bring both to zero and add $120,000 to retained earnings.
Common mistakes
- Posting entries to a period that is already closed
- Skipping the post-closing trial balance
- Closing without reviewing adjustments first
Why it matters for service firms
Most accounting software performs closing entries automatically at year-end. Even so, owners should know what happens, since it explains why prior-year numbers should not change after the books are locked.
Frequently asked questions
Do closing entries happen every month?
Most firms close temporary accounts once a year. Monthly closes lock the period and review the results, but the formal closing entries usually occur at year-end. See year-end close.
What is a post-closing trial balance?
A trial balance run after the closing entries. It should show only balance sheet accounts, with revenue and expense accounts at zero. It confirms that the closing was done correctly.
Related terms and guides: year-end close, month-end close, retained earnings, trial balance, and general ledger.