What is Closing Entries Procedure?
The closing entries procedure is the year-end accounting routine that zeros out all temporary accounts (revenues, expenses, gains, losses, dividends) and transfers the net result to retained earnings, completing the accounting cycle for the period.
How It Works
- Step 1: Close all revenue accounts to Income Summary.
- Step 2: Close all expense accounts to Income Summary.
- Step 3: Close Income Summary (net income) to Retained Earnings.
- Step 4: Close dividends declared to Retained Earnings.
Saudi Context
For Saudi businesses on the standard 1 January to 31 December fiscal year, closing entries are dated 31 December and form the foundation of the audited financial statements submitted to ZATCA within 120 days of year-end. ERPs like Qoyod automate the four-step routine once the period is locked.
Example
A Saudi company’s 31 December closing entries: (1) Dr Revenue 1,000,000 Cr Income Summary 1,000,000; (2) Dr Income Summary 750,000 Cr Expenses 750,000; (3) Dr Income Summary 250,000 Cr Retained Earnings 250,000; (4) Dr Retained Earnings 50,000 Cr Dividends Declared 50,000.