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Definition of Closing Journal
Closing entries are one of the journal formats created at the end of each accounting period in order to be able to eliminate nominal estimates (income, expenses, commissions) and also to transfer net income or net loss to capital.
After closing entries can be posted to each account, all remaining zero balance estimates are actual estimates (assets, liabilities, equity).
As a result of this closure, the balance of those accounts will be 0 (zero) at the beginning of the accounting period. Also blocked accounts are nominal accounts and capital support accounts.
What is classified as a nominal account is an income and an expense, while a capital support account is a private account and summary of profit or loss.
After the closing entries have been posted to each account, the actual estimate (asset, liability, equity, or equity) remains.
The nominal account is a temporary account in which the benefits from the account are useful only until the end of the accounting period.
The purpose of the closing log
- Closing the remainder in all temporary estimates so that the estimate becomes 0 (empty).
- For the capital account balance to report an amount that matches a situation at the end of time so that the remaining equity account equals the final amount of capital that can be reported on the balance sheet.
- Distribute a transaction to the income and liability account so that it does not mix with the face value of an income and liability in the following year.
Log closing function
- Prepare a balance sheet at the beginning of the next period after running the closing journal.
- Facilitates when an investigation is carried out, because it is carried out intermediately on the transactions carried out between the current moment and the next accounting period.
- Provide a series of financial information that actually comes from a company after the closing journal. This real account consists of assets, liabilities and capital.
Accounts requiring closing entries
- Summary or Profit/Loss Balance Sheet
How to do the closing log
- The income account that appears on an income statement is copied to debits and credits the profit or loss summary with the amount in the income account.
- The expense account is credited with the amount of each in the profit or loss account and debited in the summary in profit or loss for the total cost.
- Privately estimated by the amount in a balance sheet column credits and debits the capital account by the same amount.
- If a company makes a profit, the journal that is created is the sum of the profit with an estimate of the profit and loss account debited and crediting the capital account with the same amount. Conversely, if a company feels a loss.
How to do the closing journal
1. Income account
Close all income accounts by transferring a savings income account to summary savings profit/loss.
2. Expense account
Close all expense accounts by transferring savings to an expense account to your income statement.
3. Profit/Loss Summary
Close all profit/loss summary accounts by transferring a remaining profit/loss summary to the capital account.
Here there are two situations that can occur, profit (income is more than expenses) or loss (income is less than expenses).
- When a profit is made, the profit/loss summary account can be debited and the capital account credited.
- If there is a loss, then the capital account is debited and the profit/loss summary can be credited.
4. Private account
Closing a private account (withdrawal of capital by the owner, often happens only in small companies). You do this by rolling a private account into a capital account.
Stages of closing the book
- Closing a nominal account.
- Closing all income accounts by transferring the income account to the income summary account (debiting income and crediting income summary).
- Closing all expense accounts can technically transfer the expense accounts to the profit and loss account (debiting profit and loss and crediting expenses).
- Close the income summary account by transferring the remaining account to the capital account.
There are two things that could happen, namely:
- If the company makes a profit, this profit and loss summary can be debited and capital credited
- If the company feels a loss, this capital can be debited and the profit and loss summary is credited.
- Closing the private account by transferring the remaining private account to the capital account (capital debit and private credit).
Example of closing log
Thus the discussion about Closing logs are: examples, goals, functions, stages, deployment and how-to from your education
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