Posting and closing journal entries refers to the closing process in accounting. This process is conducted at the end of a fiscal year in order to prepare the accounting records for the next year. In order to close the accounting books, an accountant brings several different types of accounts’ balances down to zero by posting journal entries. This process is completed after all transactions for the year are posted and financial statements are complete.
Close the revenue accounts. The first step in the closing process is to perform and post journal entries to close the revenue accounts. Journal entries are written in the company’s general journal and are posted to the company’s general ledger, which is a book containing all of the business’s accounts and balances. To close the revenue accounts, post a debit to each revenue account for the complete balance in each. Post a credit to an account called Income Summary. This is a temporary account used only for the closing process. This entry leaves each revenue account at a zero balance.
Close all expense accounts. For each expense account, record and post a journal entry that credits each account for the full balance in each. Debit the total amount to Income Summary. This entry can be completed in one step, instead of posting a separate entry for each expense account. This entry leaves all expense accounts at a zero balance.
Balance out the Income Summary account. If this account has a credit balance, it represents net income the company made. If it has a debit balance, it represents a net loss. Close the Income Summary account by either debiting it or crediting it, depending on the balance it contains. You must do the opposite of where the balance is. For example, if the Income Summary account has a $10,000 debit balance, you must credit this account for that amount. The opposite entry then goes into the owner’s equity account.
Close the drawing account. The final step in the closing process is used to close the owner’s drawing account. This account tracks all draws the owners of the business make during the year. To close this account, debit the owner’s equity account and credit the drawing account for the full amount contained in it.
Post all transactions. After recording all of the transactions in the general journal, be sure to post them in the general ledger to update all account balances.