Closing entries
Financial Accounting glossary · The Accounting Cycle & Financial Statements
Definition
Period-end entries that close temporary accounts (revenues, expenses, and dividends declared) to retained earnings, typically routed through an Income Summary clearing account. Resets temporary accounts to zero so the next period accumulates flows from a clean balance.
Closing entries in plain English
At the end of an accounting period, closing entries hit the reset button on the "temporary" scoreboards — the accounts that tracked this period's revenues, expenses, and dividends — so they start the next period at zero. The leftover profit gets swept into retained earnings (the company's running pile of kept earnings), usually passing through a temporary holding bucket called Income Summary along the way. It's exactly like resetting a video game's round score to 0 before the next round, while your lifetime total keeps climbing. Without this, next period's numbers would pile on top of the old ones and become meaningless.
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