How to Close Expense Accounts: A Simple Process - Accounting | Profitspear
Closing expense accounts is a key step in the accounting cycle, done at the end of an accounting period to prepare accounts for the next cycle. The process involves transferring the balances from all expense accounts to the Income Summary account, effectively resetting their balances to zero. This ensures accurate tracking of expenses for each period. After all expenses are closed, the Income Summary is used to determine the net profit or loss, which is then transferred to the Retained Earnings account. This simple yet crucial process helps maintain clean and organized financial records.