…Adjusting entries are necessary to record even though they don’t have an exact date attached to them. Things like depreciation, prepaid insurance premiums and bad debts (accounts your business will not likely collect) are all taken care of through adjusting entries. At the end of an accounting period, after the initial trial balance works out, these entries will be recorded and posted to make sure the financial statements are as accurate as possible for the time spanned.
Closing entries are done to bring the revenue and expense accounts to zero and move the profit or loss to the Owner’s Equity account. Expenses and revenues are temporary accounts that will show only the transactions that apply to each period. Closing entries allow that to happen.
For a more detailed description of these terms and reports, pick up a book with practice problems and examples. “Accounting for Non-Accountants” by Wayne Label is an easy to read guide with simple explanations. Dr. Label’s blog and website have plenty of tests and practice transactions to give you practical experience with double entry accounting. You can also contact him directly at his email. Get more familiar with this important business concept and you’re sure to understand accounting and your business better.