Sunflower Intelligence
Finance & Accounting

F01 · Introductory

Introduction to Financial Accounting

12 lessons

F01 · Module 4, lesson 1 · Lesson 11 of 12

Closing entries

At the end of a period, the revenue, expense and dividend accounts are emptied into Retained Earnings so that the next period starts from zero. Learn the four closing entries, record Lantern’s for March, and prove the result with a post-closing trial balance.

About 80 minutes

Before you start

You will be able to

  • Distinguish temporary accounts, which are closed at the end of each period, from permanent accounts, which carry their balances forward.
  • Explain the two jobs closing entries do: resetting the temporary accounts and bringing Retained Earnings up to date.
  • Record the four closing entries through Income Summary, for a net income and for a net loss.
  • Prepare a post-closing trial balance and use it to confirm that only permanent accounts remain open.
  • Calculate retained earnings after closing and reconcile it with the statement of changes in equity and the balance sheet.
  • Identify common closing errors and correct them.

Review first

Fictional case A fictional coffee business founded by Ana Lim. It starts as a catering and barista-training service, opens its own cafés and an online shop for beans, and plans a canned cold brew.

The idea

Fictional case

It is 31 March 2026 and Lantern’s first month is complete on paper. The adjusting entries are posted and the statements are done: net income of $990, a $300 dividend to Ana, and retained earnings of $690 on the balance sheet. Yet the Retained Earnings account in the general ledger still shows a zero balance, because no entry has ever touched it. Meanwhile Catering Revenue holds $5,600, Wages Expense $3,000 and Dividends $300. If April’s transactions were simply posted on top, April’s income statement would report two months of revenue and wages as though they were one.

Two things are out of step. The ledger disagrees with the balance sheet it was used to prepare, and the accounts that measure March’s performance are still full of March. The last two steps of the accounting cycle put both right: the closing entries, and a final check called the post-closing trial balance.

Accounts that measure a period, and accounts that carry forward

Recall the split from lesson 2. Temporary accounts, also called nominal accounts, measure what happened during a period: revenue, expenses and dividends. Permanent accounts, also called real accounts, measure what the business has and owes at a moment: assets, contra-assets such as accumulated depreciation, liabilities, common stock and retained earnings. Lantern’s cash at the end of 31 March is its cash at the start of 1 April, so permanent balances carry forward. March’s catering revenue is not April’s, so temporary balances must start again from zero.

A car’s dashboard makes the difference concrete. The odometer shows the total distance the car has ever travelled and is never reset. The trip meter shows the distance of the current journey and is set back to zero before the next one. Permanent accounts are odometers; temporary accounts are trip meters, and closing is the moment you press reset, after writing down how far the trip went.

Where does that figure go? Into Retained Earnings. Revenue, expenses and dividends are all changes in equity that the business tracks in separate accounts so that it can report them. You met the link in the expanded accounting equation: ending retained earnings equal beginning retained earnings plus revenue, minus expenses, minus dividends. During the period those pieces sit in their own accounts. At the end, their net effect belongs in Retained Earnings.

What closing entries do

Closing entries are journal entries made at the end of an accounting period that transfer the balances of the temporary accounts into Retained Earnings, leaving every temporary account with a zero balance. They do two jobs at once:

  • Reset. Every revenue, expense and dividend account starts the next period at zero, so the next income statement measures that period alone.
  • Update. Retained Earnings absorbs the period’s net income and dividends, so its balance in the ledger equals the amount on the balance sheet.

Income Summary: a checkpoint on the way

The traditional method routes revenue and expenses through a temporary account called Income Summary. It exists only for closing: its balance is zero before closing starts and zero when it ends, and it never appears on a financial statement. Revenue balances are moved into it on the credit side and expense balances on the debit side. Once both are in, its balance is the period’s net income (a credit) or net loss (a debit). That figure must agree with the income statement, which makes Income Summary a built-in check.

The method has four entries, made in this order:

  1. Close the revenue accounts. Debit each revenue account for its balance; credit Income Summary for total revenue.
  2. Close the expense accounts. Debit Income Summary for total expenses; credit each expense account for its balance.
  3. Close Income Summary. For a net income, debit Income Summary and credit Retained Earnings for the amount. For a net loss, do the opposite.
  4. Close Dividends. Debit Retained Earnings and credit Dividends for the period’s dividends.

One rule produces every line: to bring an account to zero, record its balance on the opposite side. Revenue accounts have credit balances, so they are debited. Expense accounts and Dividends have debit balances, so they are credited. Dividends go straight to Retained Earnings, not through Income Summary, because they are not an expense and are not part of net income. Passing them through Income Summary would make its balance differ from the net income on the income statement and spoil the check.

The four closing entries, numbered in the order they are made. Revenue and expenses meet in Income Summary, whose balance moves to Retained Earnings; Dividends go to Retained Earnings directly.

In depth

Lantern’s closing entries for March

The figures come from Lantern’s adjusted trial balance at 31 March. Two revenue accounts total $7,100: Catering Revenue $5,600 and Training Revenue $1,500. Eight expense accounts total $6,110. Dividends hold $300. The closing entries are dated 31 March, the last day of the period, and are made after the statements have been prepared from the adjusted balances.

Lantern’s closing entries, 31 March 2026 (fictional)
DateAccountDebit ($)Credit ($)
31 MarCatering Revenue5,600
Training Revenue1,500
Income Summary7,100
(1) Close the revenue accounts.
31 MarIncome Summary6,110
Wages Expense3,000
Rent Expense1,200
Supplies Expense900
Utilities Expense260
Advertising Expense350
Insurance Expense150
Depreciation Expense200
Interest Expense50
(2) Close the expense accounts.
31 MarIncome Summary990
Retained Earnings990
(3) Close Income Summary: net income for March.
31 MarRetained Earnings300
Dividends300
(4) Close Dividends.

Entry 2 has nine lines because every expense account with a balance must be closed. Leave one out and that expense stays open, so Retained Earnings is overstated by its amount. Entry 3 is the checkpoint: after entries 1 and 2, Income Summary holds a credit of 7,100−6,110=9907{,}100 - 6{,}110 = 990, exactly the net income on the income statement. Had the two disagreed, an account would have been missed or closed for the wrong amount, and you would stop and find it before going on.

Income Summary and Retained Earnings after closing. The numbers in brackets refer to the closing entries above.

Income Summary is back to zero and has done its job. Retained Earnings now shows a credit balance of $690, the same figure as the ending balance on the statement of changes in equity: 0+990−300=6900 + 990 - 300 = 690. For the first time, the ledger agrees with the balance sheet. The temporary accounts, meanwhile, are empty. Here are three of them, with the March entries that built their balances and the closing entry that cleared each one.

Three temporary accounts after closing: each has a zero balance, ready for April. “adj.” marks an adjusting entry.

Closing directly to Retained Earnings

Income Summary is a convenience, not a requirement. Entries 1 to 3 can be combined into one compound entry that debits each revenue account, credits each expense account and credits Retained Earnings for the difference, which is net income. Dividends are then closed exactly as before. The final balances are identical. What you lose is the separate checkpoint, although you can still compare the Retained Earnings line of the entry with net income.

Entries 1 to 3 combined, closing directly to Retained Earnings (fictional)
DateAccountDebit ($)Credit ($)
31 MarCatering Revenue5,600
Training Revenue1,500
Wages Expense3,000
Rent Expense1,200
Supplies Expense900
Utilities Expense260
Advertising Expense350
Insurance Expense150
Depreciation Expense200
Interest Expense50
Retained Earnings990
Close revenue and expenses; the difference, net income, goes to Retained Earnings. Dividends are closed in a separate entry, as before.

Which method a business uses is a bookkeeping choice: the financial statements look the same either way. Manual systems and textbooks often keep Income Summary because its checkpoint catches mistakes. Accounting software usually shows no closing entries at all, as you will see under In practice.

When the period ends in a loss

If expenses exceed revenue, entries 1 and 2 leave Income Summary with a debit balance equal to the net loss. To bring it to zero, entry 3 credits Income Summary and debits Retained Earnings. A net loss therefore reduces retained earnings, just as a net income increases them.

Take a fictional ski school in July, when its only revenue comes from lessons on an artificial slope. It earns training revenue of $4,000 and pays wages of $2,800, rent of $1,200 and advertising of $600, so its expenses total $4,600 and it makes a net loss of $600.

Closing a net loss: a fictional ski school, 31 July 2026
DateAccountDebit ($)Credit ($)
31 JulTraining Revenue4,000
Income Summary4,000
(1) Close revenue.
31 JulIncome Summary4,600
Wages Expense2,800
Rent Expense1,200
Advertising Expense600
(2) Close expenses.
31 JulRetained Earnings600
Income Summary600
(3) Close Income Summary: a net loss, so Retained Earnings is debited.

Check Income Summary before writing entry 3: credits of 4,000 and debits of 4,600 leave a debit balance of 600, which entry 3 clears with a credit of 600. The common mistake is to copy the profitable pattern (debit Income Summary, credit Retained Earnings) without looking at the balance. That would leave Income Summary with a debit of $1,200 instead of zero, and it would increase retained earnings by $600 in a month when the business lost $600. Always close Income Summary on the side opposite its balance.

The post-closing trial balance

A post-closing trial balance lists the ledger balances after the closing entries have been posted. It is the last step of the accounting cycle and checks two things: that debits still equal credits, and that only permanent accounts still have balances. A revenue, expense, Dividends or Income Summary line on it means closing is incomplete.

Lantern Coffee Co.: post-closing trial balance at 31 March 2026 (fictional)
AccountDebit ($)Credit ($)
Cash26,650
Accounts Receivable1,800
Supplies600
Prepaid Insurance1,650
Equipment12,000
Accumulated Depreciation—Equipment200
Accounts Payable8,760
Wages Payable1,400
Interest Payable50
Unearned Revenue1,600
Notes Payable10,000
Common Stock20,000
Retained Earnings690
Total42,70042,700

Thirteen accounts, all permanent. Retained Earnings shows a balance for the first time.

Compare the totals of Lantern’s three trial balances: $46,860 before adjustment, $49,110 after it and $42,700 after closing. Closing removed $6,410 from each side. On the debit side, expenses of $6,110 and dividends of $300 disappeared: 6,110+300=6,4106{,}110 + 300 = 6{,}410. On the credit side, revenue of $7,100 disappeared and a Retained Earnings balance of $690 appeared: 7,100−690=6,4107{,}100 - 690 = 6{,}410.

Nor is $42,700 the total of the balance sheet, which shows total assets of $42,500. The difference is accumulated depreciation. On a trial balance it is a credit balance like any other, so it adds $200 to the credit column; on the balance sheet it is subtracted from equipment. Debits of 42,700 less the 200 of accumulated depreciation give total assets of 42,500. Credits of 42,700 are liabilities of 21,810 plus equity of 20,690 plus that same 200.

Formulas

Income Summary after closing revenue and expenses

Income Summary balance=∑Revenue−∑Expenses=Net income\text{Income Summary balance} = \sum \text{Revenue} - \sum \text{Expenses} = \text{Net income}
∑Revenue\sum \text{Revenue}
Total of the revenue account balances for the period$
∑Expenses\sum \text{Expenses}
Total of the expense account balances for the period$
Net income\text{Net income}
Profit for the period; a negative result is a net loss$

Assumes. Dividends are not included: they are closed directly to Retained Earnings.

A positive result is a credit balance, closed by a debit; a negative result is a debit balance (a net loss), closed by a credit.

Retained Earnings after closing

REafter=REbefore+Net income−DividendsRE_{\text{after}} = RE_{\text{before}} + \text{Net income} - \text{Dividends}
REbeforeRE_{\text{before}}
Retained Earnings balance before the closing entries, which is its balance at the start of the period$
REafterRE_{\text{after}}
Retained Earnings balance after the closing entries are posted$
Dividends\text{Dividends}
Dividends declared in the period$

The same calculation as the statement of changes in equity. After closing, the ledger balance must equal it.

Post-closing trial balance and the balance sheet

Total debits=Total assets+Contra-asset balances\text{Total debits} = \text{Total assets} + \text{Contra-asset balances}
Total assets\text{Total assets}
Total assets on the balance sheet, after contra-assets are deducted$
Contra-asset balances\text{Contra-asset balances}
Credit balances such as accumulated depreciation, which a trial balance lists on the credit side$

Total credits = liabilities + equity + contra-asset balances. For Lantern: 42,500 + 200 = 42,700.

Worked examples

A first example: A driving school closes its year

Fictional figures

Greenlight Driving School, a fictional company, closes its books once a year. Its adjusted trial balance at 31 December 2026 shows Training Revenue of $186,000; Wages Expense $92,000, Fuel Expense $14,500, Rent Expense $18,000, Insurance Expense $9,800, Advertising Expense $6,200 and Depreciation Expense $21,000; Dividends of $10,000; and Retained Earnings of $38,000 carried from earlier years. Record the closing entries and find Retained Earnings after closing.

Greenlight Driving School: closing entries (fictional)
DateAccountDebit ($)Credit ($)
31 DecTraining Revenue186,000
Income Summary186,000
(1) Close revenue.
31 DecIncome Summary161,500
Wages Expense92,000
Fuel Expense14,500
Rent Expense18,000
Insurance Expense9,800
Advertising Expense6,200
Depreciation Expense21,000
(2) Close expenses.
31 DecIncome Summary24,500
Retained Earnings24,500
(3) Close Income Summary: net income.
31 DecRetained Earnings10,000
Dividends10,000
(4) Close Dividends.
  1. Close revenue. Training Revenue has a credit balance of 186,000, so debit it for 186,000 and credit Income Summary for the same amount. Training Revenue is now zero.
  2. Close expenses. Add the six balances: 92,000+14,500+18,000+9,800+6,200+21,000=161,50092{,}000 + 14{,}500 + 18{,}000 + 9{,}800 + 6{,}200 + 21{,}000 = 161{,}500. Debit Income Summary 161,500 and credit each expense account for its own balance.
  3. Check Income Summary. Credits of 186,000 less debits of 161,500 leave a credit balance of 24,50024{,}500: net income, which must agree with the income statement. Close it on the opposite side: debit Income Summary 24,500, credit Retained Earnings 24,500.
  4. Close Dividends, which bypass Income Summary: debit Retained Earnings 10,000, credit Dividends 10,000.
  5. Retained Earnings after closing: 38,000+24,500−10,000=52,50038{,}000 + 24{,}500 - 10{,}000 = 52{,}500.

Answer. Four entries close eight temporary accounts. Retained Earnings after closing is a credit balance of $52,500.

What it means. The school kept $14,500 of the year’s $24,500 profit in the business, so its retained earnings grew from $38,000 to $52,500. Every revenue, expense and dividend account opens 2027 at zero, ready to measure the new year on its own.

A harder example: A loss year that leaves a deficit

Fictional figures

Bluewing Flight Academy, a fictional flying school, closes its second year on 31 December 2026. Its adjusted balances include Training Revenue $386,000 and Interest Revenue $1,500 (on student payment plans); Wages Expense $214,000, Fuel Expense $92,000, Repairs Expense $38,500, Insurance Expense $24,000, Rent Expense $30,000 (for its hangar) and Depreciation Expense $48,000; and Dividends of $5,000, paid in the spring. Retained Earnings had a credit balance of $22,000 at the start of the year. Close the books and interpret the result.

Bluewing Flight Academy: closing entries (fictional)
DateAccountDebit ($)Credit ($)
31 DecTraining Revenue386,000
Interest Revenue1,500
Income Summary387,500
(1) Close revenue.
31 DecIncome Summary446,500
Wages Expense214,000
Fuel Expense92,000
Repairs Expense38,500
Insurance Expense24,000
Rent Expense30,000
Depreciation Expense48,000
(2) Close expenses.
31 DecRetained Earnings59,000
Income Summary59,000
(3) Close Income Summary: a net loss.
31 DecRetained Earnings5,000
Dividends5,000
(4) Close Dividends.
  1. Close both revenue accounts in one entry: debit Training Revenue 386,000 and Interest Revenue 1,500, and credit Income Summary 386,000+1,500=387,500386{,}000 + 1{,}500 = 387{,}500.
  2. Close the six expenses: 214,000+92,000+38,500+24,000+30,000+48,000=446,500214{,}000 + 92{,}000 + 38{,}500 + 24{,}000 + 30{,}000 + 48{,}000 = 446{,}500. Debit Income Summary 446,500 and credit each expense.
  3. Read Income Summary before going further. Debits of 446,500 exceed credits of 387,500, so it has a debit balance of 446,500−387,500=59,000446{,}500 - 387{,}500 = 59{,}000: a net loss. Close it on the credit side: credit Income Summary 59,000, debit Retained Earnings 59,000.
  4. Close Dividends: debit Retained Earnings 5,000, credit Dividends 5,000. Both the loss and the dividend reduce retained earnings.
  5. Retained Earnings after closing: 22,000−59,000−5,000=−42,00022{,}000 - 59{,}000 - 5{,}000 = -42{,}000. The account now has a debit balance of 42,000.

Answer. Retained Earnings ends the year with a debit balance of $42,000.

What it means. A debit balance in Retained Earnings is called an accumulated deficit: since it began, the academy has lost more than it has earned and kept. The balance sheet shows it as a negative amount within equity, so total equity is $42,000 less than the owners’ contributed capital. The dividend paid in the spring, when the board still expected a profit, made the deficit larger. Lenders and the board will look hard at this figure before any further dividend, and at what caused the loss.

Applied: a business decision: Signing off Lantern’s close

Fictional figures

Suppose Lantern’s accountant, working in a hurry, posts the closing entries and hands Ana a post-closing trial balance whose two columns both total $43,000. On it, Dividends shows a debit of $300 and Retained Earnings a credit of $990; every other line matches the table in this lesson. Ana wants to lock March and start recording April. Should she sign off, and if not, what must be done?

The two lines that differ, draft against correct (fictional)
LineDraft ($)Correct ($)
Dividends (debit)3000
Retained Earnings (credit)990690
Column totals43,00042,700
  1. Scan for temporary accounts. Dividends is temporary and should be zero after closing. Its presence means entry 4 was never posted.
  2. Confirm with Retained Earnings: net income of 990 less dividends of 300 should leave 690. The draft shows 990, so the dividend never reached Retained Earnings.
  3. Explain why the draft still balances. The unclosed $300 sits on the debit side (Dividends) and is matched by $300 too much on the credit side (Retained Earnings): 42,700+300=43,00042{,}700 + 300 = 43{,}000 in each column.
  4. Fix it: post entry 4, debiting Retained Earnings 300 and crediting Dividends 300. Retained Earnings falls to 690, Dividends to zero, and both columns to 42,700.
  5. Decide: lock March only when the corrected trial balance agrees line by line with the balance sheet. If April opened with Dividends at $300, April’s statement of changes in equity would report March’s dividend as if it had been paid in April.

Answer. Not yet. Post the missing fourth closing entry (debit Retained Earnings $300, credit Dividends $300), confirm that the post-closing trial balance totals $42,700 with Retained Earnings of $690, then lock March.

What it means. A post-closing trial balance that balances can still be wrong. The reviewer’s questions are “is anything temporary still open?” and “does every balance match the balance sheet?”, not only “do the columns agree?”. A few minutes of checking now prevents an error that would otherwise surface in April’s statements, when it is harder to trace.

Explore

Post Lantern’s whole month and then close it. The first 22 entries rebuild March’s adjusted balances (the trial balance reaches $49,110); the last four are the closing entries. Watch each temporary account fall to zero, Retained Earnings fill to $690, and the trial balance shrink to $42,700.

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Now build the four closing entries yourself: choose the accounts, the side of each line and the amount, then compare with the answer.

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Common mistakes

  • “Dividends are closed to Income Summary, like expenses.”

    Dividends are a distribution of profit, not an expense, so they bypass Income Summary. If Lantern’s $300 were closed to Income Summary, its balance would be $690 instead of the $990 of net income on the income statement, and the check Income Summary provides would be lost. Retained Earnings would happen to end at the right figure, but entry 3 would misstate what the period earned. Close Dividends straight to Retained Earnings.

  • “Anything with ‘revenue’ or ‘depreciation’ in its name gets closed.”

    Unearned Revenue is a liability, Accumulated Depreciation—Equipment is a contra-asset, and Supplies and Prepaid Insurance are assets. None of them is closed. Test each account by where it is reported: if it appears on the balance sheet, it is permanent and its balance carries forward.

  • “Entry 3 always debits Income Summary.”

    Only when there is a net income. Look at Income Summary’s balance after entries 1 and 2 before writing entry 3. A debit balance is a net loss, closed by crediting Income Summary and debiting Retained Earnings. Debiting Income Summary again would double its debit and add the loss to retained earnings instead of subtracting it.

  • “Closing changes profit, or moves cash.”

    Closing entries move balances within equity after net income has been measured. They change neither net income nor any asset or liability. Lantern’s cash is $26,650 before and after closing, and its retained earnings of $690 are a claim on all its assets, not money set aside in a drawer.

  • “You can close first and adjust afterwards.”

    Closing uses the adjusted balances, so it comes after the adjusting entries and the statements. Had Lantern closed its unadjusted balances, Retained Earnings would have received the unadjusted profit of $2,290 instead of $990, and the adjustments posted afterwards would have landed in accounts that are supposed to measure April.

  • “If the post-closing trial balance balances, every account was closed.”

    Suppose Interest Expense ($50) were left out of entry 2. Income Summary would show $1,040, Retained Earnings would end at $740 instead of $690, and the post-closing trial balance would still balance, at $42,750 on each side, because the $50 sits on both sides. Only reading the list of accounts reveals the error: Interest Expense should not be there.

Guided practice

Work through these with hints when you need them. Every hint and every worked solution is there to be used.

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On your own

No hints this time. Answer, check, and read the feedback; the solution appears once you have answered or if you ask for it. Your first answers count toward mastery.

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In practice

How often businesses close

Lantern closes every month so that you can watch the whole cycle in a single month. Most businesses close their books once a year, at the end of their fiscal year. They still prepare monthly or quarterly statements for managers, lenders and investors, but they do so without formal closing entries. The income statement for a month simply reports the revenue and expenses recorded between two dates, and the balance sheet adds the profit earned so far this year to retained earnings.

Accounting software takes care of the mechanics. Nobody resets the revenue and expense accounts by hand; reports are calculated for whatever dates are chosen, and at the turn of the year the package rolls the old year’s profit into retained earnings itself. QuickBooks Online, for example, moves last year’s net income into its retained earnings account when a new fiscal year begins, and lets the business set a closing date that protects earlier transactions from being changed by accident.

“The close” in a finance team

In practice, then, “closing the books” means more than four journal entries. Finance teams speak of the month-end or year-end close: the routine of recording accruals and other adjustments, reconciling accounts with bank and supplier statements, reviewing the results, and then locking the period so that nobody can post into it by mistake. Locking matters because the statements have already gone to people who rely on them. A change after that point should be a deliberate, documented correction, not a quiet edit.

The post-closing trial balance has a practical afterlife too. Its balances are the opening balances of the next period. When a business moves to a new accounting system, these are the figures it enters as the starting point. And auditors check that a year’s opening balances agree with the closing balances of the year before, because an error carried across the year end would distort both years.

Ana signs off March

On 2 April Ana reviews the close with her accountant. Three questions take five minutes. Does Income Summary’s $990 agree with the income statement? Does the post-closing trial balance contain only permanent accounts? Does each balance on it match the balance sheet, with Retained Earnings at $690? With three yeses, March is locked, and April begins with every revenue, expense and dividend account at zero. When the board later considers a dividend, it will look at retained earnings, but it will look at cash as well, because $690 of retained earnings and $26,650 of cash are answers to different questions.

Knowledge check

Six questions, one attempt each, no hints. Score 80% or more to complete the lesson; you can take it again at any time.

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Summary

  • Temporary accounts (revenue, expenses and dividends) measure one period and are closed; permanent accounts (assets, contra-assets, liabilities and equity) carry their balances forward.
  • Closing entries reset the temporary accounts to zero and move the period’s net income and dividends into Retained Earnings, so the ledger agrees with the balance sheet. They change no asset, liability or total equity.
  • The four entries: close revenue to Income Summary; close expenses to Income Summary; close Income Summary to Retained Earnings; close Dividends to Retained Earnings.
  • After the first two entries, Income Summary equals net income (a credit) or net loss (a debit). Close it on the opposite side. Closing directly to Retained Earnings gives the same result without the checkpoint.
  • Lantern’s March close moves $990 of net income and $300 of dividends into Retained Earnings, leaving $690; its post-closing trial balance totals $42,700.
  • A post-closing trial balance lists only permanent accounts. Balancing proves the arithmetic, not the closing: compare every line with the balance sheet.
  • Most businesses close once a year and prepare monthly statements without closing; software rolls profit into retained earnings and locks closed periods.

Key formulas

Terms introduced

Closing entries
Journal entries made at the end of an accounting period that transfer the balances of the revenue, expense and dividend accounts to Retained Earnings, leaving those accounts at zero.
Income Summary
A temporary account used only during closing. Revenue and expenses are closed into it, so its balance equals net income or net loss; it is then closed to Retained Earnings. It never appears on a financial statement.
Post-closing trial balance
A trial balance prepared after the closing entries are posted. It contains only permanent accounts and confirms that debits equal credits as the next period begins.

Sources

  1. Franklin, M., Graybeal, P. & Cooper, D. (2019). Principles of Accounting, Volume 1: Financial Accounting, section 5.1, “Describe and Prepare Closing Entries for a Business”. OpenStax. openstax.org/books/principles-financial-accounting/pages/5-1…
  2. Franklin, M., Graybeal, P. & Cooper, D. (2019). Principles of Accounting, Volume 1: Financial Accounting, section 5.2, “Prepare a Post-Closing Trial Balance”. OpenStax. openstax.org/books/principles-financial-accounting/pages/5-2…
  3. Intuit. “Lock your books in QuickBooks Online”. QuickBooks Help (help article on closing dates and year-end retained earnings). quickbooks.intuit.com/learn-support/en-us/help-articles/how-…