Month-end close Updated November 2026

Year-end close

A year-end close is the December (or fiscal year-end) month-end close plus the annual steps: confirm every balance sheet account is reconciled and supported, finalize depreciation, accruals, inventory counts and bad debt allowances, then post closing entries that transfer revenue and expense balances to retained earnings so the new year starts from zero.

Syntax

Close revenue: Dr Revenue / Cr Income Summary. Close expenses: Dr Income Summary / Cr Expenses. Close net income: Dr Income Summary / Cr Retained Earnings. Close dividends: Dr Retained Earnings / Cr Dividends

Part	What it is
`Closing entries`	Zero out temporary accounts (revenue, expenses, dividends) into retained earnings
`Annual adjustments`	Inventory count, bad debt allowance, depreciation true-up, bonus and audit fee accruals
`Full reconciliations`	Every balance sheet account, with evidence retained for the auditor
`Lock`	Close the year in the software; post-closing changes only by approved entry in the new year

Examples

Revenue 500,000; expenses 420,000; dividends 20,000

Result: Dr Revenue 500,000 / Cr Income Summary 500,000; Dr Income Summary 420,000 / Cr Expenses 420,000; Dr Income Summary 80,000 / Cr Retained Earnings 80,000; Dr Retained Earnings 20,000 / Cr Dividends 20,000. Retained earnings rise by 60,000.

Year-end bank reconciliation: statement 14,200; outstanding checks 1,900; deposit in transit 600; book balance 12,900

Result: 14,200 - 1,900 + 600 = 12,900, reconciled; the outstanding list is retained as audit evidence.

Bakery year-end: inventory count 3,850 vs ledger 4,100

Result: Dr Cost of Goods Sold 250 / Cr Inventory 250 to bring the ledger to the count.

Common mistakes

Closing the year before the final bank reconciliation: January then carries unexplained December items.
Posting closing entries manually in software that closes automatically: retained earnings get the net income twice.
Forgetting to reverse December accruals in January: the January bills double the expense.

Practice Year-end close

These drills check your answer on live data, free, no account needed.

Bakery year-endClassify every line, enter both adjusted balances, then choose the journal entry the company must record for each item that affects its books.
The full workoutClassify every line, enter both adjusted balances, then choose the journal entry the company must record for each item that affects its books.

Questions

What is the difference between month-end and year-end close?

Year-end includes all month-end work plus closing entries, annual adjustments (inventory, allowances, tax provisions), full reconciliations and preparation of the annual financial statements.

Do I need closing entries in accounting software?

Most software closes income and expense accounts to retained earnings automatically when you set the fiscal year; you only post the adjustments. Manual systems require the closing entries.

Month-end close checklistA month-end close checklist in sequence: cutoff, bank and card reconciliations, AR and AP, accruals and prepaids, fixed assets, balance sheet recs, lock.
Balance sheet reconciliationA balance sheet reconciliation supports each ledger balance with independent evidence: a bank statement, an aging, a schedule or a roll-forward. Sign-off.
Fixed asset reconciliationReconcile the fixed asset register to the general ledger with a roll-forward of cost and accumulated depreciation: opening, additions, disposals, closing.
Accruals at month-endHow to accrue expenses incurred but not yet billed and revenue earned but not yet invoiced at month-end, with worked entries and the reversal next month.