The Closing Process Is Necessary In Order To What?

The closing entry process is necessary in order to close all Temporary Accounts or Nominal Accounts at the end of the accounting period and hence all revenues and expenses have zero ledger’s balances at the end of the accounting period.

The purpose of closing entry is to close all the expenses and revenues accounts for the current accounting period and transfer the net profit or net income and retained earning to owner’s equity or equity account in order to calculate the finalized value of closing owner’s equity or closing equity account.

When Closing Entries Are Made?

The time to record Closing Entries is after the preparation of completed Financial Statements in order to ensure that all the temporary accounts are closed i.e., these have zero or nil ledger’s balances and permanent accounts left in the company business’ books of accounts before the start of the new fiscal or accounting period.