Introduction to Closing Entries:Temporary and Permanent Accounts

Brian Krogol
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Alright. So after we've adjusted our books, made our adjusted trial balance, created our financial statements. Well then we're ready to close the books for the year. Let's check it out. So we're gonna make some closing entries after we've put out our financial statements. Right? And these closing entries are used to zero out what we call a temporary account balances. Let's go back to the temporary account balances. And this is after the financial statements have been created. Right? So let's talk about what these temporary accounts are. Temporary accounts are accounts related to a certain time period. Okay, so they're temporary because they're only related to that time period. And those are generally going to be our income statement accounts for the most part. I'm gonna say income statement and dividends because that is the other one. Right? So we've got our revenues are expenses and dividends are are the temporary accounts. Okay, so remember that dividends is not an expense, right? We've said it all in unison together, dividends are not an expense, dividends are not an expense, but they are a temporary account because they only hold the value from this year's dividends and then we want to start over next year. Alright, so those are temporary accounts being our income statement accounts plus dividends that are permanent accounts. Well, these are accounts that hold balances from period to period. These are gonna be our balance sheet accounts. Okay, balance sheet accounts, you can think there's some cash balance last year, but we're not going to zero out the cash, right? We still have that cash and the next year, we're gonna have a different amount of cash or somehow the same amount of cash whatever it might be. Um That account is never gonna be closed. There's always gonna be some balance in the cash account and we're gonna leave it year over year. Right? So those asset liability and equity accounts, those are going to be our permanent accounts. I want to introduce you to one more account, the income summary account. And this is a temporary account used during the closing process. Okay? So it only comes up now while we do the closing entries and then we don't use it throughout the year. It just helps us close the books. Okay? So let's pause here and then we'll we'll go through each of the closing entries using our example from the adjusted trial balance. So grab your adjusted trial balance from the previous lessons and we're gonna use that to to close out the books of that company. All right, so let's do that now.
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