Dictionary / Close
What does Close mean in accounting?
Quick definition
Equity & capital(the books) To transfer the balance of revenue and expense accounts at the end of an account period directly, or through a profit-and-loss (or clearing) account, to retained earnings or to another proprietorship account or accounts, so that only balance-sheet (asset, liability, and net worth; = real) accounts remain open on the general ledger. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
December profit parks in owner's equity
On December 31 at a deli, Sales shows $139,800 and expenses total $118,450 after the last meat-supplier bill and December catering invoices are in. You close: those temporary accounts go to $0, and the $21,350 profit transfers to owner's equity. Cash, inventory, and the $1,920 still owed to that meat supplier stay on the balance sheet; only those real accounts remain open on the general ledger. QuickBooks Online or Xero does this automatically at fiscal year-end. Run January's P&L and income starts at $0; do not post a second journal to zero Sales.
A lock date is not a close
On April 8 you run a screen-print shop and turn on Close the books in QuickBooks Online with a closing date of March 31 so last quarter's invoices to an athletics client cannot be edited. That lock does not close the books: March Sales of $27,400 and Ink & film of $4,180 stay on the general ledger, and nothing moved to equity. The actual close waits until December 31, or your fiscal year-end. If you post a journal in April that zeros Sales and expenses, April starts at $0 even though the year is not over. Lock the period if you want a freeze; leave the year-end transfer to the software.
Why it matters
Close is the year-end action that zeros revenue and expense accounts and moves the net profit or loss into owner's equity or retained earnings. You do this once per accounting period, usually the fiscal year, after invoices, bills, and adjustments are in; QuickBooks Online and Xero run it automatically, so you will not post it most months. Casual month-end "close" is reconciling and a period lock, not this transfer. Skip it on books you keep by hand and last year's sales still sit on the general ledger while net worth is missing the result; treat it as the same thing as closing entries (the journal lines) or a software lock date, and you will wipe income too early or freeze a month without moving profit to equity.
Further reading
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What is Close in bookkeeping?
(the books) To transfer the balance of revenue and expense accounts at the end of an account period directly, or through a profit-and-loss (or clearing) account, to retained earnings or to another proprietorship account or accounts, so that only balance-sheet (asset, liability, and net worth; = real) accounts remain open on the general ledger.
When should I use Close?
Use Close when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Close?
Close is used for close entries, while C&F covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.