Closing the Books
Definition
The end-of-period process of finalising the accounts — posting adjustments, reconciling balances, transferring revenue and expense balances to retained earnings, and locking the period so reports are stable.
Related Terms in Core Accounting
Opening Balance
The balance in an account at the start of a period, carried forward from the close of the prior period. Correct opening balances are essential when migrating to new accounting software.
Posting
The step of transferring amounts from journal entries into the individual accounts of the general ledger. In modern software, posting happens automatically when a transaction is recorded.
Reversing Entry
A journal entry made at the start of a period to cancel a specific adjusting entry from the prior period, simplifying the recording of the actual transaction when it occurs. It prevents double counting of accruals.
Compound Journal Entry
A journal entry that affects more than two accounts at once, with multiple debits and/or credits, while still keeping total debits equal to total credits. Payroll and invoices with tax are common examples.
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