The definition of closing entry is the operation through which the record of operations of a company is stopped, to provide a vision of the equity, the economic situation of the company and the results at a certain point in time.
The closing entry is intended to make the debit balances equal numerically with the credit balances or vice versa. Once the financial statements are obtained, one of the last tasks to be carried out is to close the different accounting records used throughout the fiscal year to be archived for a specified period of time.
Closing seat concept
The closing entry is a formal technical record, the purpose of which is to close all accounts that maintain a balance at the end of each year. Through this system, the accounts that maintain a creditor balance are charged for the amount of their balance, and all those that maintain a debit balance would be paid. The opposite would be the opening entry of the following campaign.
The closure of accounting records of an organization has several objectives, such as the following:
- Do not facilitate the subsequent incorporation of transactions that do not affect or are exposed in the financial accounts.
- Close all income statements in a definitive way.
- Incorporate in accounting the results achieved at the end of the year, that is, the profit or loss.
- Temporarily close balance sheet accounts (passive, asset and heritage).
The closing entries are identified with a series of characteristics. Among other things, they are made every year. Only on the cut-off date for the issuance of financial statements.
In summary, the closing entry or accounting closing first supposes the regularization of the expense and income accounts to achieve the result of the year, which will allow knowing what has been gained or lost in a period of time. Then the accounts of the net worth and finally liquidate all accounts with a balance so that it is equal to zero.