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Closing Journal: Definition, Purpose, Function, How to Make

Closing Journal: Definition, Purpose, Function, How to Make – In this discussion we will explain about Closing Journals. Which includes understanding, goals and functions, how to create and accounts that require closing journals with complete and easy-to-understand discussion.

Closing Journal: Definition, Purpose, Function, How to Make

For more details, please see the review below carefully.

Definition of Closing Journal

Closing journal or in English which is also known as Closing Journal Entry is a journal published at the end of the accounting period to close temporary nominal accounts. As a result of the closure, the account balances will change to 0 (zero) at the beginning of the accounting period. Accounts that are closed are nominal accounts (such as income and expenses) and capital auxiliary accounts (eg prive and profit or loss summary).

After this closing journal is uploaded to each of the remaining accounts, namely real estimates (assets, liabilities, capital/equity). Closing entries are made depending on the type or form of the company, whether in the form of PT, CV and Firma or individual companies because the capital structure of each type of company is different.

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Purpose And Function Of Closing Journal

The purpose and function of the closing journal include:

  • Closing balances in all temporary estimates, which changes these estimates to 0 (zero)
  • So that the capital account balance can provide an overview of the amount in accordance with the conditions at the end of the period, which makes the capital account balance equal to the final amount reported on the balance sheet.
  • Differentiate income and expense account transactions so that they are not mixed with the nominal amount of acquisitions and expenses in the following year.
  • Shows the initial balance sheet for the next period after closing the book.
  • Facilitate when conducting inspections, because after the separation of transactions that occur between the current period and the next accounting period.
  • Shows real financial information about a company after closing the book (closing journal). Actual funds are composed of prices, liabilities, and equity.

Accounts Requiring Closing Journals

There are accounts that require closing entries at the end of the period, including:

  • Income
  • Burden
  • Overview / balance profit/loss
  • private

Use of Closing Journals

The following are some of the uses of closing journals, including:

  1. As a closing balance contained in all temporary accounts. The word close is defined as reducing the account balance so that it turns to zero. Therefore in the following period all temporary accounts will start again with a zero balance. In this way, the temporary account balances for this period can be separated from the temporary account balances for the next period.
  2. So that the capital account balance shows the amount that is in accordance with the conditions at the end of the period. With this journal, the balance in this capital account will be the same as the final capital amount reported on the balance sheet.

Stages of the Closing Journal Making Procedure

In the process of closing the book, we need to use a new temporary account, namely the Profit and Loss Account (or some call it the Profit and Loss Summary). This account is only used at the closing of the books at the end of the period. In this account, all income and expense account balances are compiled, so that this can be one the figure which is the net profit or net loss which is then transferred to the Capital account owner. To do closing journals, we need to prepare closing journals that look like general journals. There are four main recording stages in closing journals, namely closing expense accounts, closing income accounts, closing ILR accounts to Capital accounts, and closing Personal accounts, if any, to Capital accounts. The steps are as follows:

  1. Close income accounts: on the debit side, write down income accounts and also the rupiah value in each account. Meanwhile, on the credit side, write down the ILR account whose rupiah value is equal to the total rupiah value of the income account.
  2. Close expense accounts; on the debit side, it is necessary to write down the ILR account with the total rupiah value of expense accounts. Meanwhile, in the credit section, the cost accounts are written down and the rupiah value is used in each expense account.
  3. Close the ILR account; if the company generates profit, it is necessary to record it by debiting the ILR account in the amount of net profit (difference between the credit balance and the debit balance of the ILR account), also credit the capital account on each credit side with the same rupiah value big. If the company is experiencing a loss, it is necessary to record it by debiting the Capital account and crediting the ILR account in the amount of net loss.
  4. Closing the Personal account; record on the debit side of the Capital account and on the credit side of the Personal account the total rupiah value of the balance in the Personal account.
  5. In the lowest column, calculate the total rupiah value on the debit and credit sides. The sum of both sides must be the same.

How to Make a Closing Journal

Closing journals are used to cover several accounts such as income, expenses, summary of profit or loss and also privacy. Below is an example of how to make a closing journal, including:

Close Revenue Account

Closing all revenue accounts is done by transferring the income accounts to the profit/loss balance/summary account. The following is an example of closing a revenue account:

Close Revenue Account

Close Expense Account

Closing all expense accounts is done by moving the expense accounts to the profit/loss summary. Below is an example of closing an expense account:

Close Expense Account

Close Profit/Loss Summary Account

Closing all profit/loss summary accounts is done by transferring the profit/loss summary balance to the capital account. There are two situations that can occur, namely profit (revenue is greater than expenses) or loss (revenue is less than expenses). Below is an example of closing a profit/loss summary account.

If you get a profit, then the profit/loss summary account is debited and the capital account is credited.

Closing the Profit and Loss Summary Account

However, if there is a loss, the capital account will be debited and the profit/loss summary will be credited.

Closing a Profit and Loss Summary Account

Closing the Private Account

Closing the private account (withdrawal of capital by the owner, often only occurs in companies with a small scale). The way to make it is by transferring the private account to the capital account. The following is an example of closing a private account:

Definition of Closing Journal, Purpose, Function, How to Make

Company Risk Not Making Closing Entries

Making a closing journal, is an appropriate step in ending a company's accounting period. So this makes this journal something very important to the accounting cycle.
By making this journal, a company knows more about the performance that has been carried out during that period. If a company does not make this journal, it is certain that this company cannot know the performance that has been carried out during a period.

Not only that, the company is also unable to evaluate the financial conditions that have occurred during a period. So this cannot support the progress of the company, in order to generate more profits.

Writing journals must also be done carefully and thoroughly. Because all transactions related to very sensitive matters, namely related to money.

Thus has been explained about Closing Journal: Definition, Purpose, Function, How to Make, hopefully can add to your insight and knowledge. Thank you for visiting and don't forget to read other articles.

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