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Closing Entries definitions Flashcards

Closing Entries definitions
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  • Closing Entries
    Journal entries made at period end to reset temporary account balances to zero, preparing accounts for the next fiscal year.
  • Temporary Accounts
    Accounts that accumulate balances for a single period, including revenues, expenses, and dividends, and are reset annually.
  • Permanent Accounts
    Accounts whose balances carry over from year to year, such as assets, liabilities, and equity, and are not closed at period end.
  • Income Summary
    A temporary account used only during the closing process to collect revenues and expenses before transferring net income or loss.
  • Adjusted Trial Balance
    A list of all account balances after adjusting entries, serving as the basis for preparing financial statements and closing entries.
  • Revenue Accounts
    Accounts that record income earned during a period, typically holding credit balances and closed to income summary at year-end.
  • Expense Accounts
    Accounts that track costs incurred during a period, usually with debit balances, and are closed to income summary at period end.
  • Dividends
    Distributions of earnings to shareholders, classified as a temporary account and closed directly to retained earnings.
  • Retained Earnings
    Equity account reflecting accumulated net income minus dividends, increased by closing net income and decreased by dividends.
  • Balance Sheet Accounts
    Accounts reported on the balance sheet, including assets, liabilities, and equity, which retain balances across periods.
  • Credit Balance
    A positive amount on the right side of an account, typical for revenues, liabilities, and equity, and used in closing entries.
  • Debit Balance
    A positive amount on the left side of an account, common for expenses, assets, and dividends, and adjusted during closing.
  • Net Income
    The excess of revenues over expenses for a period, transferred to retained earnings through the closing process.
  • Fiscal Year
    An accounting period of twelve months for which financial statements are prepared and closing entries are made.
  • Equity Accounts
    Accounts representing owners' claims on assets, including retained earnings, which are affected by closing entries.