Closing General Ledger Accounts
At the end of each period income and expenses general ledger accounts are closed and must have 0 balance, as income statement indicates income earned and expenses incurred for the particular period. These accounts will be used in the next period to account income and expenses for that period.
Closing of income and expenses accounts is done by transferring balances in these accounts to a balance sheet account called Retained earnings used to accumulate net profit retained in the business and belonging to the owners.
Balance in the Retained earnings account might be either on credit side (in case income exceed expenses, which means the company earned profit for the period), or on debit side (in case income is less than expenses, which means the company incurred loss for the period).
Below closing of expenses account is presented. Closing is done by crediting expenses account with the balance in this account accumulated for the whole period, i.e. 7617$. This amount is transferred to Retained earnings account No. 31 debit turnover side. After this operation, balance in retained earnings account equals to 7617$ on the debit side.
Further closing of income account is presented. Closing is done by debiting income account with the balance in this account accumulated for the whole period, i.e. 13500$. This amount is transferred to Retained earnings account No. 31 credit turnover side. After this operation, balance in retained earnings account equals to 5883$ on the credit side. This means that Alfa earned profit in June equal to 5883$, which you can also see in the income statement which was prepared earlier.
Want more information on accounting? Learn Accounting Basic with our Accounting Basic Video Course. This is a detailed video course, helping you to learn accounting in a step by step manner. You can watch videos, you can print out video presentations, in this course you will find plenty of explanations and practical examples, which are essential to learn and understand accounting.
Start mastering your accounting skills with Accounting Basic Video Course. Click here to learn more...
Subscribe to our RSS feed
Return from Closing General Ledger Accounts to Accounting Cycle