How to Pass Closing Journal Entries

Closing journal entries are helpful for closing the accounts in any financial year of any organisation. These entries are relating to revenue, expenses and drawing because next financial year, we have to open these account with zero balance.

1. To Pass the Journal Entries to Close the Revenue Accounts 

To close the revenue accounts are necessary because we have earned the amount, so, we can use it for our business. No one can ask for same money. It can be used for business promotion. Now, you should pass the following journal entries.

Respected Revenue account Debit

Profit and Loss account Credit

There may be lots of revenues. Each revenue account will Debit because we are closing it. When we have started revenue account, we have credited it because it was our gain. Gain will always credit. Now, its account's closing balance will show. But we have to close it. So, we credited profit and loss account. It means, simply total earning are still credit with a new name which will club small and small revenues and credit in profit and loss account with single name. Now, there will no identity of any revenue account in next financial year.

2. To Pass the Journal Entries to Close the Expenses Accounts

To close the revenue accounts are necessary because we have paid same amount and we have gained its service benefit in this year, so, for calculating our net incomes, we need to close all expenses account. No one can demand money in next year because we have proof of payment.  Now, you should pass the following journal entries.

Profit and Loss Account Debit

Respected Expenses Account Credit

There may be lots of expenses. Each expense account will credit in this journal entry  because we are closing it. When we have started expense  account, we have debited for showing expenses in book. Now, we need to close, so all expenses will debited in profit and loss account. That is the reason, we are debiting profit and loss account.

3. To Pass the Journal Entry for Close the Profit and Loss Account 

After find the balance by deducting expenses side from income side in profit and loss account, we will transfer same net profit to capital account. If there is net loss, still, it will transfer to capital account. On this basis, capital account will show correct amount.

If Net profit

Profit and loss account Debit

Capital Account Credit

If Net Loss

Capital Account Debit

Profit and Loss Account Credit

4. To Pass the Journal Entries to Close the Drawing Account 

Our drawing account's balance will be the loss of our business's capital. So, it will be closed by transferring capital account. With this, our capital will decrease. So, capital account must be debited and drawing account will credited with its closing balance amount.

Capital Account Debit

Drawing Account Credit


Following is the example of Closing Entries 


March 31Sale Revenue 100,000
Profit and Loss Account100,000
2March 31Profit and Loss Account 50,000
Salaries Expense30000
Internet Expense10000
Domain Hosting Expense5000
Electricity Expense5000

3March 31Profit and Loss Account50000
Capital Account 50000
4March 31Capital Account 10000
Drawing Account 10000

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Accounting Education: How to Pass Closing Journal Entries
How to Pass Closing Journal Entries
Accounting Education
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