What Are The Steps In Recording Closing Entries

Closing Entries are recorded at the end of the end of the accounting period after all the Financial Statements are prepared. This closing entry process is necessary in order to check financial performance and position of the business after closing all of the temporary accounts.

There are four (4) steps of closing entry process:

1. Closing Expenses Accounts To Income Summary Account

All the expenses accounts and losses accounts or the debit side of income summary account is closed to Income Summary Account.

2. Closing Revenues Accounts To Income Summary Account

All the revenues accounts and gains accounts or the credit side of income summary account is closed by debited revenues account and credited to income summary account.

3. Income Summary Account is closed to retained earnings account

Income summary account, being a temporary account, is also closed to retained earnings account.

4. Dividend Account or Drawings Account Is Also Closed To Retained Earnings Account or Capital Account

A dividend account is prepared to record a distribution of share of profit or income to shareholders is also, finally, closed by transferring it to retained earnings account or equity or owner’s equity account.

In case of proprietorship or partnership, drawings account is closed to owner’s equity account.