Closing journal entries are helpful for closing the accounts in any financial year of any organisation. These entries are relating to revenue, expenses and drawing because next financial year, we have to open these account with zero balance.
1. To Pass the Journal Entries to Close the Revenue Accounts
To close the revenue accounts are necessary because we have earned the amount, so, we can use it for our business. No one can ask for same money. It can be used for business promotion. Now, you should pass the following journal entries.
Respected Revenue account Debit
Profit and Loss account Credit
There may be lots of revenues. Each revenue account will Debit because we are closing it. When we have started revenue account, we have credited it because it was our gain. Gain will always credit. Now, its account's closing balance will show. But we have to close it. So, we credited profit and loss account. It means, simply total earning are still credit with a new name which will club small and small revenues and credit in profit and loss account with single name. Now, there will no identity of any revenue account in next financial year.
2. To Pass the Journal Entries to Close the Expenses Accounts
To close the revenue accounts are necessary because we have paid same amount and we have gained its service benefit in this year, so, for calculating our net incomes, we need to close all expenses account. No one can demand money in next year because we have proof of payment. Now, you should pass the following journal entries.
Profit and Loss Account Debit
Respected Expenses Account Credit
There may be lots of expenses. Each expense account will credit in this journal entry because we are closing it. When we have started expense account, we have debited for showing expenses in book. Now, we need to close, so all expenses will debited in profit and loss account. That is the reason, we are debiting profit and loss account.
3. To Pass the Journal Entry for Close the Profit and Loss Account
After find the balance by deducting expenses side from income side in profit and loss account, we will transfer same net profit to capital account. If there is net loss, still, it will transfer to capital account. On this basis, capital account will show correct amount.
If Net profit
Profit and loss account Debit
Capital Account Credit
If Net Loss
Capital Account Debit
Profit and Loss Account Credit
4. To Pass the Journal Entries to Close the Drawing Account
Our drawing account's balance will be the loss of our business's capital. So, it will be closed by transferring capital account. With this, our capital will decrease. So, capital account must be debited and drawing account will credited with its closing balance amount.
Capital Account Debit
Drawing Account Credit
1. To Pass the Journal Entries to Close the Revenue Accounts
To close the revenue accounts are necessary because we have earned the amount, so, we can use it for our business. No one can ask for same money. It can be used for business promotion. Now, you should pass the following journal entries.
Respected Revenue account Debit
Profit and Loss account Credit
There may be lots of revenues. Each revenue account will Debit because we are closing it. When we have started revenue account, we have credited it because it was our gain. Gain will always credit. Now, its account's closing balance will show. But we have to close it. So, we credited profit and loss account. It means, simply total earning are still credit with a new name which will club small and small revenues and credit in profit and loss account with single name. Now, there will no identity of any revenue account in next financial year.
2. To Pass the Journal Entries to Close the Expenses Accounts
To close the revenue accounts are necessary because we have paid same amount and we have gained its service benefit in this year, so, for calculating our net incomes, we need to close all expenses account. No one can demand money in next year because we have proof of payment. Now, you should pass the following journal entries.
Profit and Loss Account Debit
Respected Expenses Account Credit
There may be lots of expenses. Each expense account will credit in this journal entry because we are closing it. When we have started expense account, we have debited for showing expenses in book. Now, we need to close, so all expenses will debited in profit and loss account. That is the reason, we are debiting profit and loss account.
3. To Pass the Journal Entry for Close the Profit and Loss Account
After find the balance by deducting expenses side from income side in profit and loss account, we will transfer same net profit to capital account. If there is net loss, still, it will transfer to capital account. On this basis, capital account will show correct amount.
If Net profit
Profit and loss account Debit
Capital Account Credit
If Net Loss
Capital Account Debit
Profit and Loss Account Credit
4. To Pass the Journal Entries to Close the Drawing Account
Our drawing account's balance will be the loss of our business's capital. So, it will be closed by transferring capital account. With this, our capital will decrease. So, capital account must be debited and drawing account will credited with its closing balance amount.
Capital Account Debit
Drawing Account Credit
Example
Following is the example of Closing Entries| Note | Date | Account | Debit | Credit |
|---|---|---|---|---|
1 | March 31 | Sale Revenue | 100,000 | |
| Profit and Loss Account | 100,000 | |||
| 2 | March 31 | Profit and Loss Account | 50,000 | |
| Salaries Expense | 30000 | |||
| Internet Expense | 10000 | |||
| Domain Hosting Expense | 5000 | |||
| Electricity Expense | 5000 | |||
| 3 | March 31 | Profit and Loss Account | 50000 | |
| Capital Account | 50000 | |||
| 4 | March 31 | Capital Account | 10000 | |
| Drawing Account | 10000 |
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