How to Close an Expense Account

by Matthew Schieltz - Updated September 26, 2017

At the end of the account period, you close certain accounts so you can prepare financial statements like the Post-Closing Trial Balance, Balance Sheet and Income Statement. Along with revenue accounts, which typically are closed first, you'll close the expense accounts to a temporary account called "Income Summary," which eventually also gets closed. Though many businesses often have many expense accounts, you may only have one or two if you're a very small business. Since closing an expense account returns it to a zero balance, this can be a good way to compare expenses from year to year.

Calculate the total of all your expense account balances. Typical expense accounts include Advertising Expense, Supplies Expense, Insurance, Wages and Rent Expense. You may have other types of expense accounts, depending on your business.

Make a debit entry in the General Journal to the Income Summary account equal to the total of all the expense accounts. Credit each individual expense account equal to its own debit balance.

Post the closing journal entry to the ledger accounts. For example, debit the Income Summary ledger account for the amount you debited it in the journal entry. For each expense account, transfer its credit amount from the journal entry to its account in the ledger so that the account returns to a zero balance.

Tips

  • You can compile a list of all your expense accounts and their balances from the Trial Balance, accounting worksheet or the general ledger.

    If you're using a physical journal, write and center the words "Closing Entries" before making any closing entries.

About the Author

Matthew Schieltz has been a freelance web writer since August 2006, and has experience writing a variety of informational articles, how-to guides, website and e-book content for organizations such as Demand Studios. Schieltz holds a Bachelor of Arts in psychology from Wright State University in Dayton, Ohio. He plans to pursue graduate school in clinical psychology.

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