Closing Entries

d) Closing Entries:

            In order to know the net result of his business i.e., in order to know whether he has obtained profit or incurred losses, every businessman prepares final accounts. Final a/c’s are prepared in three parts.

                             a) Trading a/c

                             b) Profit and Loss a/c

                             c) Balance Sheet.

          At the end of every financial year, the balances of all the nominal accounts are computed and transferred to the trading and profit and loss accounts. These transferred entries will become the closing entries. These nominal accounts include accounts pertaining to both expenses and revenues. The accounts pertaining to revenue expenditure a/c are balanced and the totals are debited to trading or profit and loss accounts. The accounts pertaining to revenue or income are balanced and the totals are credited to the trading or profit and loss accounts.

          These closing entries are recorded in the journal proper. The following the closing entries.