1. Close revenue accounts at year-end

Situation: At year-end, the business has total sales revenue of ₹12,00,000. The revenue account must be closed to the Profit and Loss Summary account.

Why this entry? Revenue accounts normally carry credit balances. Debiting the revenue account closes its balance for the period.

Accounting logic: The Profit and Loss Summary account collects revenue and expense balances to determine the period’s profit or loss.

2. Close expense accounts at year-end

Situation: The business has total expenses of ₹8,00,000 for the period. Assume the individual expense accounts are being closed together for simplicity.

Why this entry? Expense accounts normally carry debit balances. Crediting them closes their balances for the period.

Accounting logic: Revenue of ₹12,00,000 less expenses of ₹8,00,000 produces a simplified profit of ₹4,00,000 before any other adjustments or applicable taxes.

3. Transfer net profit to retained earnings

Situation: A company has a net profit of ₹4,00,000 after closing its revenue and expense accounts. The profit is transferred to retained earnings.

Why this entry? The company transfers the period’s profit into accumulated equity.

Accounting logic: Profit increases retained earnings, subject to distributions and other applicable adjustments.

Important: Some accounting systems use a different closing process. For a sole proprietorship, the profit is generally transferred to the owner’s capital account rather than company retained earnings.

4. Transfer a net loss to retained earnings

Situation: A company records a net loss of ₹1,50,000 for the period. The loss is transferred from the Profit and Loss Summary account to retained earnings.

Why this entry? A net loss reduces accumulated equity.

Accounting logic: Debit retained earnings to reflect the reduction in accumulated profits.

Important: For a sole proprietorship, the corresponding transfer is generally to the owner’s capital account.

5. Record depreciation at period-end

Situation: Equipment requires depreciation of ₹60,000 for the financial year, based on the applicable depreciation policy.

Why this entry? Depreciation allocates the depreciable amount of an asset over its useful life.

Accounting logic: The expense reduces period profit, while accumulated depreciation reduces the asset’s carrying amount on the balance sheet.

6. Record an accrued expense

Situation: At year-end, the business has incurred electricity expenses of ₹18,000 that have not yet been invoiced or paid. The amount can be reliably estimated.

Why this entry? The electricity was consumed during the period, even though the bill has not yet been received or paid.

Accounting logic: Recognise the expense in the period it relates to and record the corresponding liability.

7. Adjust a prepaid expense

Situation: The business initially recorded ₹1,20,000 of insurance as a prepaid asset. At year-end, ₹30,000 remains unexpired, meaning ₹90,000 relates to the current period.

Why this entry? The portion of insurance consumed during the period must be recognised as an expense.

Accounting logic: The unexpired ₹30,000 remains as an asset and is carried forward to the next period.

8. Record income earned but not yet received

Situation: The business has earned ₹25,000 in service income by year-end but has not yet invoiced the customer. Assume the amount qualifies for recognition under the applicable accounting requirements.

Why this entry? The income has been earned during the period even though the billing or collection occurs later.

Accounting logic: Recognise qualifying earned income in the correct period. The debit may be a receivable, accrued income, or contract asset depending on the contractual facts and accounting framework.

9. Adjust revenue received in advance

Situation: The business previously received ₹60,000 from a customer and recorded it as unearned revenue. By year-end, ₹20,000 of the contracted service has been delivered and qualifies for revenue recognition.

Why this entry? The business has now fulfilled the relevant portion of its service obligation.

Accounting logic: Reduce the contract liability and recognise revenue only to the extent the applicable revenue-recognition requirements are satisfied.

Balance carried forward: ₹40,000 remains unearned, assuming no other changes.

10. Record the closing inventory adjustment

Situation: Under a periodic inventory system, the business has closing inventory of ₹2,00,000 at year-end. For this simplified example, assume the opening inventory and purchases have already been recorded and the closing inventory is measured correctly under the applicable framework.

Why this entry? Under a periodic inventory system, the closing inventory adjustment recognises goods still held by the business at the reporting date.

Accounting logic: Closing inventory is reported as a current asset and affects the calculation of cost of goods sold.

Important: This is a simplified periodic-inventory illustration. The exact accounts and closing process depend on the accounting system. Under a perpetual inventory system, inventory records are updated continuously, and a separate entry of this form may not be required.