Accounting Dictionary

Closing Entry

Closing entries empty out the income statement accounts and the dividend account in order to transfer the information to retained earnings. These entries will leave the income statement and dividend accounts empty, ready to receive data for the next accounting period. The retained earnings account will be up to date having received the net income and stockholder distribution information for that period.

There are two methods for doing closing entries, but both result in deducting expenses from retained earnings, adding income to retained earnings, and subtracting stockholder distributions from retained earnings. In addition, Other Comprehensive Income for each period is closed into Accumulated Other Comprehensive Income on the balance sheet as a component of stockholders’ equity.

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