End-of-period entry that transfers temporary-account balances and resets revenue and expense accounts for the next period.
A closing entry is an end-of-period journal entry used to transfer the balances of temporary accounts, such as revenue and expense accounts, out of the current period and into retained earnings or another closing destination. After closing, those temporary accounts start the next period at zero.
Closing entries separate one reporting period from the next. Without them, current-period revenue and expenses would roll forward and distort future results.
After ordinary transactions and adjusting entries are complete, accountants close revenue accounts, close expense accounts, and transfer the resulting net income or loss into retained earnings. Some systems use an income summary account in the process; others close directly.
Closing entries are not day-to-day transaction postings. They are period boundary entries.
Assume the business has $50,000 of revenue and $42,000 of expenses for the year. A simplified closing sequence transfers the $8,000 net income into retained earnings and resets the temporary accounts for the next period.
Closing entries are not the same as adjusting entries. Adjusting entries refine period recognition before statements are prepared, while closing entries reset temporary accounts after the period result is finalized.