What is Closing Entry?
A closing entry is a journal entry posted at the end of an accounting period to transfer balances from temporary accounts (revenues, expenses, dividends) to retained earnings, resetting them to zero for the next period.
How It Works
- Close revenue accounts to Income Summary.
- Close expense accounts to Income Summary.
- Close Income Summary and Dividends to Retained Earnings.
Saudi Context
Saudi accountants close books in line with ZATCA and IFRS reporting cycles. Cloud ERPs used by SMEs in the Kingdom typically automate the closing entries at fiscal year-end.
Example
A Saudi trading firm closes SAR 5 million revenue and SAR 4 million expenses to Income Summary, transferring the SAR 1 million net profit to retained earnings.