6 Steps to Close Your Accounting Year

Step 1: Record Every Transaction for the Year
Step 2: Reconcile Your Accounts

To close your accounting year, record every transaction for the year, reconcile your accounts, record the year-end adjusting entries, prepare the adjusted trial balance and financial statements, record the closing entries, and check the result with a post-closing trial balance. Closing resets the year's revenue, expense and dividend accounts to zero, so the new year starts with only the balance sheet accounts carried forward.

Billed publishes this page. Definitions are quoted from OpenStax, Principles of Accounting, Volume 1: Financial Accounting, chapters 4 and 5, opened on October 30, 2026. For the full accounting cycle, period by period, see what is the accounting cycle. This page doesn't cover tax filing; for US returns and due dates, see the guide to small business tax filing.

Step 1: Record Every Transaction for the Year

Enter all the year's sales, purchases, payments and receipts in your books, up to the last day of your fiscal year. Make sure every invoice sent and every bill received in the year is recorded in the year it belongs to.

Step 2: Reconcile Your Accounts

Compare each bank and card account with its statement at the year-end date, and explain every difference. See bank reconciliation. Check that the totals owed to you and owed by you match their detailed lists.

Step 3: Record the Year-End Adjusting Entries

OpenStax's chapter 4 key terms say adjusting entries "update accounting records at the end of a period for any transactions that have not yet been recorded". At year-end this includes the year's depreciation, work done but not yet invoiced, and bills for the year that haven't arrived. Ask your accountant which adjustments your business needs.

Step 4: Prepare the Adjusted Trial Balance and Financial Statements

List every account balance after the adjustments and check that debits equal credits; see what is a trial balance. Then prepare the income statement and the balance sheet for the year; see how to make an accounting report.

Step 5: Record the Closing Entries

OpenStax's chapter 5 key terms define a closing entry as one that "prepares a company for the next accounting period by clearing any outstanding balances in certain accounts that should not transfer over to the next period", and closing as "returning the account to a zero balance". The year's revenue, expense and dividend accounts are closed:

revenues to the income summary account;
expenses to the income summary account;
the income summary to retained earnings;
dividends to retained earnings.

OpenStax describes the income summary as an "intermediary between revenues and expenses, and the Retained Earnings account, storing all the closing information for revenues and expenses, resulting in a “summary” of income or loss for the period".

Step 6: Prepare the Post-Closing Trial Balance

OpenStax's section 5.2 explains what it checks: "The post-closing trial balance is also used to double-check that the only accounts with balances after the closing entries are permanent accounts. If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process."

Once it balances, the closing balances become the opening balances of the new year.

Worked Example: A Year-End Close (sample figures)

These are sample figures for a fictional company, invented for this example. After step 4, its adjusted balances for the year include:

Service revenue: $96,000.00
Expenses: salaries $48,000.00, rent $18,000.00, depreciation $6,000.00 and supplies $4,000.00, a total of $48,000.00 + $18,000.00 + $6,000.00 + $4,000.00 = $76,000.00
Dividends: $8,000.00
Retained earnings at the start of the year: $15,000.00

Step 5: closing entries

Debit service revenue $96,000.00; credit income summary $96,000.00.
Debit income summary $76,000.00; credit salaries $48,000.00, rent $18,000.00, depreciation $6,000.00 and supplies $4,000.00 (credits $76,000.00).
Debit income summary $96,000.00 − $76,000.00 = $20,000.00, the year's net income; credit retained earnings $20,000.00.
Debit retained earnings $8,000.00; credit dividends $8,000.00.

Each entry has equal debits and credits. Retained earnings at year-end: $15,000.00 + $20,000.00 − $8,000.00 = $27,000.00.

Step 6: post-closing trial balance

Debits: cash $30,000.00, accounts receivable $9,000.00 and equipment $40,000.00. Total $30,000.00 + $9,000.00 + $40,000.00 = $79,000.00.
Credits: accumulated depreciation $12,000.00, accounts payable $5,000.00, common stock $35,000.00 and retained earnings $27,000.00. Total $12,000.00 + $5,000.00 + $35,000.00 + $27,000.00 = $79,000.00.

Debits equal credits, and only permanent accounts appear: revenue, expense, income summary and dividend accounts are all at zero.

Where Billed Fits

Billed's financial reporting page says: "All reports in Billed can be exported for use with your accountant, bookkeeper, or tax software."

When This Guide Isn't for You

If your business has inventory, payroll, loans or more than one entity, or you need audited or tax-ready statements, ask your accountant to do or review the year-end close.

Related Guides

FAQ

What are closing entries?

OpenStax defines a closing entry as one that "prepares a company for the next accounting period by clearing any outstanding balances in certain accounts that should not transfer over to the next period". The revenue, expense and dividend accounts are closed, through the income summary, to retained earnings.

Which accounts are closed at year-end?

The temporary accounts: revenues, expenses, dividends and the income summary. Balance sheet accounts, such as cash, receivables, payables and retained earnings, carry forward.

What is a post-closing trial balance?

A trial balance prepared after the closing entries. In this page's sample, its debits and credits are both $79,000.00, and only permanent accounts appear.

Do I need an accountant to close the year?

Ask your accountant, particularly if your business has inventory, payroll, loans or more than one entity, or needs tax-ready statements.

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