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Special Entries

Closing Entries

When preparing the accounts of any entity for any year, there will be certain opening and closing entries that will need to be incorporated in the balance sheet. Without these opening and closing entries, the accounts will fail to provide the true and fair view of the financial status of the entity. Let us understand how to pass an opening and closing entries.

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Closing entries

Before understanding closing let us see what is opening entries.

Opening entries

The opening balance is usually that balance which is brought forward at the beginning of an accounting year from the end of a previous accounting year.

The opening balance is the amount of capital or fund in a company’s account at the start of a new financial year. It is the very first entry in the books of accounts.

In an operating entity, the closing balance at the end of one month or year becomes the opening balance for the beginning of the next month or accounting year.

The opening balance will be appearing on the credit or debit side of the ledger, as the case may be.

The entry is:

Opening Journal entry

Date Particulars   Amount(Dr.) Amount(Cr.)
XXX All Asset A/c’s Dr.
To All Liabilities A/c
To Owners’ Capital A/c
(Being Opening entry passed)

Closing Entries


Closing Entries

A closing entry is a journal entry that is passed at the end of the accounting year to transfer balances from a temporary account to a permanent account.

All the expenses and gains or income related nominal accounts must be closed at the end of the year. In order to close them, we transfer them to either Trading A/c or Profit and Loss A/c. Journal entries required for transferring them to such account is called a ‘closing entry’.

We pass the Closing Entries on the basis of trial balance for transferring the balances to Trading and profit and loss A/c. These entries are:

Closing Journal entries

Date Particulars   Amount(Dr.) Amount(Cr.)
a)For transferring purchases and direct expenses (goods related) to Trading A/c Trading A/c Dr.
To Opening stock A/c
To Purchases A/c
To Factory expenses A/c
To Freight & carriage inward A/c
(Being purchase and direct expenses recorded)
b)For transferring sales and closing stocks Sales A/c Dr.
Closing Stock A/c Dr.
To Trading A/c
(Being  sales and closing stock recorded)
c)For transferring gross profit or gross loss to P & L A/c Trading A/c Dr.
To P & L A/c
(Being transfer of Gross profit)
P & L A/c Dr.
To Trading A/c
(Being transfer of Gross Loss)
d)For transferring expenses P & L A/c Dr.
To Respective expense A/c
(Being expenses transferred)
e)For transferring Incomes Respective income A/c’s Dr.
To P & L A/c
(Being incomes transferred)
f)For transferring Net profit or Net loss P & L A/c Dr.
To Capital A/c
(Being net profit transferred)
Capital A/c Dr.
To P & L A/c
(Being net loss transferred)


Solved Example for You

Pass closing entries for the following Transaction as on 31st March 2017 presented by A Ltd.

Particulars  Amount
Opening stock 1000
Purchases 5000
Wages 500
Returns outward 500
Sales 10000
Returns inward 1000
Salaries 800
Insurance 100
Bad debts 300
Interest received 300
Discount allowed 400
Discount received 300
Closing stock 1500


Closing Journal entries

Date Particulars   Amount(Dr.) Amount(Cr.)
Trading A/c Dr. 7500
To Opening stock A/c 1000
To Purchases A/c 5000
To Wages A/c 500
To, Returns inward A/c 1000
(Transfer to balances for closing the latter accounts)
Sales A/c Dr. 1OOOO
Returns outward A/c Dr. 500
Closing Stock A/c Dr. 15000
To, Trading A/c 12000
(Transfer of balances for closing the former accounts)
Trading A/c Dr. 4500
To, Profit and Loss A/c 4500
(Gross profit transferred)
Profit and Loss A/c Dr. 1600
To, Salaries A/c 800
To, Insurance A/c 100
To, Bad Debts A/c 300
To, Discount allowed A/c 400
(Transfer of balances for closing the latter accounts)
Interest received A/c Dr. 300
  Discount received A/c Dr. 300
  To, Profit and Loss A/c 600
  (Transfer of balances for closing the former accounts)
Profit and Loss A/c Dr. 3500
  To, Capital A/c 3500
  (Net profit transferred to Capital A/c)


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