How to Close Off Nominal Accounts in Accounting

Nominal accounts are zeroed out at each closing period.

Nominal accounts are accounts that are zeroed out at each closing period. Each time the accounts are closed, the account reverts back to zero to start the next period. While closing the account, any money in the account is placed into an equity account.

Instructions

1. Debit the nominal revenue accounts (credit the nominal revenue accounts if it has a negative balance) and credit a "temporary income summary account" (or debit a negative "temporary income summary account"). This closes out any money in the nominal revenue account and places it in a temporary account.

2. Credit nominal expense accounts (debit nominal expense accounts if it has a positive balance) and debit a "temporary income summary account" (or credit a "temporary income summary account"). This closes out any money in the nominal expense account and places it in a temporary account.

3. Sum the "temporary income summary accounts'" credit and debit balances.

4. Close the "temporary income summary account" to "stockholders' equity." Debit "temporary income summary" if it has a positive revenue balance. Credit "stockholders' equity." If there is a negative revenue balance in the "temporary income summary" account, credit "temporary income summary" and debit "stockholders' equity." This closes the temporary account and places the earnings into equity.

References

• Cerritos College: Chapter 6 Closing Entries