Closing journal entries are an important part of the accounting process. You use closing entries at the end of your accounting period to zero the balances of all revenue, expense, and draw or dividend accounts. Your closing entries transfer the balances of those accounts to retained earnings or capital. Using T-accounts can help you see a visual picture of your closing journal entries, which may help you avoid errors.

Create T-accounts for each income statement account, the dividends or owner draws account, the retained earnings or capital account, and the temporary closing account titled "Income Summary." Put the account name at the top of the T-account.

Enter the current balance in each T-account, directly under the top of the T. Enter debits on the left and credits on the right side of the T. Precede each account balance by the date of the balance, generally the date of your most recent financial statements.

Insert closing entries to all revenue T-accounts. Do this by entering the date and the opposite of the current balance. For example, if "Sales" shows a credit balance of $500, enter a $500 debit to "Sales" and a $500 credit to "Income Summary." The "Income Summary" account is used only to temporarily hold income statement account balances prior to transferring its total to capital or retained earnings.

Enter closing entries to all expense T-accounts by entering the date and the opposite of the current balance. For example, if "Rent Expense" has a debit balance of $200, enter a $200 credit to "Rent Expense" and a $200 debit to "Income Summary."

Total the entries in the "Income Summary" T-account and "foot" it. This means that you enter the balance at the bottom of the appropriate side of the T-account depending whether you have a debit or credit balance.

Enter the closing entry to your "Income Summary" T-account. Do this by entering the date and the opposite of your footed total. For example, if the "Income Summary" account shows a $1,000 credit balance, enter a debit of $1,000 to "Income Summary" and a credit of $1,000 to "Capital" or "Retained Earnings."

Close the dividend or owner draws T-account. Enter the date and the opposite of its current debit balance. For example, if the current balance shows a $100 debit, enter a $100 credit to "Owner Draws" or "Stockholder Dividends," and enter a $100 debit directly to "Capital" or "Retained Earnings."

Verify that your debits equal your credits by completing a post-closing trial balance. Only balance sheet accounts should now have a balance because you closed all income statement accounts. If you started with a balanced general ledger and completed all closing entries with matching debits and credits, your post-closing trial balance should contain equal debits and credits.


Debits must equal credits in all closing journal entries.