Closing Entries

Closing entries are made at each year-end to transfer the balance of income and expense accounts to the account commonly known as Income Statement. From the latter and depending on the nature of the entity, the balance is then transferred back into the owner’s capital or retained earnings. The same applies to contributions and withdrawals that are transferred to the owner’s capital (for a sole proprietorship) or retained earnings (for a corporation by share) that transfers the dividend account balance.
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