Understanding and How to Make a Closing Journal

Closing journals are journals created at the end of the accounting period to close temporary nominal accounts. As a result of this closing, the balances of these accounts will be 0 (zero) at the beginning of the accounting period. Closed accounts are nominal accounts and capital auxiliary accounts. Nominal accounts include income and expenses, while capital auxiliary accounts are prive and profit / loss summary. After the closing journal is posted to each account, all that remains is the real estimate (assets, liabilities, capital / equity).

Purpose and Function of Making Closing Journal

1. Closes the balance contained in all provisional estimates, so the estimate becomes 0 (zero).
2. So that the capital account balance shows the amount in accordance with the situation at the end of the period, so that the capital account balance will be the same as the final capital amount reported on the balance sheet.
3. Separate income and expense account transactions so they do not mix with the nominal amount of income and expenses in the following year.
4. Present the beginning of the next period after the closing of the book.
5. Simplify when the inspection is carried out, because it has been done the separation of transactions that occur between the current period with transactions in the next accounting period.
6. Present financial information that is real (real) from a company after closing the book (closing journal). The real account consists of assets, liabilities and equity.

How to Make a Closing Journal

Closing journals are used to close several accounts, namely income, expenses, profit / loss summary, and prive. Closing journals can also be defined as journal entries made at the end of an accounting period to transfer balances of various temporary accounts or nominal accounts to permanent accounts in the ledger.

A closing journal is created when the annual financial statements have been prepared. This is to ensure that each income and expense account has a balance of 0 (zero) to start the next accounting cycle, which is a new period in a company.

Here are each ways to make it.

1. Income Account

Referred to as revenue is the result or income obtained by the company. There are 2 types of income, namely operating income which is income directly related to the company’s business activities and non-business income which is income that is not directly related to business activities.

Close all income accounts by moving the income account to the profit / loss summary account. Here is an example.

2. Account Load

Understanding the burden itself is the sacrifice that occurs during business activities to earn income. There are two types of expense accounts, namely operating expenses which are direct sacrifices for business activities and other expenses which are expenses that have nothing to do with business activities.

Close all expense accounts by moving the expense account to the profit / loss summary. Here is an example.

3. Overview of Profit / Loss

Close the entire profit / loss summary account by moving the profit / loss summary balance to the capital account. Here there are two conditions that can occur, profit (income greater than expenses) or loss (income less than expense). Here is an example.

If you make a profit, the profit / loss summary account is debited and the capital account is credited

And, if a loss is made, the capital account is debited and the profit / loss summary credited

4. Prive Account

Close a prive account (withdrawal of capital by the owner, usually only occurs in small-scale companies). You do this by moving the prive account to the capital account. Here is an example.

Closing Journal compiled depends on the form of the company, whether it is PT, CV, firm, or individual company, because the capital structure of the types of companies above is of course different. That is the understanding and how to make a closing journal in accounting that you should know about. Managing a journal in a business is not easy. For that, you can use online accounting software to help you make a closing journal and financial report.