Describe the essential steps in the closing process, Accounting Basics

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Q. Describe the essential steps in the closing process?

In accounting we habitually refer to the process of closing as closing the books. Remember that merely expense, revenue and Dividend accounts are closed not liability, asset, Capital Stock or Retained Earnings accounts. The four essential steps in the closing process are

- Closing the revenue accounts that are transferring the balances in the revenue accounts to a clearing account called Income Summary.

- Closing the expense accounts that are transferring the balances in the expense accounts to a clearing account called Income Summary.

- Closing the Income Summary account that are transferring the balance of the Income Summary account to the Retained Earnings account.

- Closing the Dividends account that are transferring the balance of the Dividends account to the Retained Earnings account.


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