Completing the Accounting Cycle: Closing Temporary Accounts

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Book: Accounting, Ninth Edition
Authors: Charles T. Horngren, Walter T. Harrison Jr., and M. Suzanne Oliver
ISBN-13: 978-0-13-256905-7
Source section: Chapter 4, part 2 of 3: Completing the Accounting Cycle

The Short Version

Closing entries are the reset button for the period. They clear temporary accounts so the next period starts fresh.

What Happens Here

Revenue, expense, and drawing accounts are temporary. They measure one period only. At the end, their balances are closed to owner capital through income summary and drawing entries.

Permanent accounts stay open. Cash, receivables, equipment, payables, and capital carry forward because the business still owns, owes, or claims those balances after the period ends.

The post-closing trial balance checks that only permanent accounts remain with balances. It is the clean handoff from one period to the next.

My Take

This part matters because it separates performance from position. Revenue and expenses explain what happened this period. Assets, liabilities, and equity explain where the business stands after that happened.

What To Keep

• Temporary accounts are closed at period end.
• Permanent accounts carry forward.
• The post-closing trial balance proves the books are ready for the next period.

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