Question

What is meant by closing entries? Why are they passed?

Answer 1

1. Balances of all the nominal accounts are required to be closed on the last day of the accounting year to facilitate the preparation of trading and profit and loss accounts.
2. It is done by passing necessary closing entries in the journal properly.
3. Purchases have a debit balance and a purchase return have a credit balance.
4. At the end of the accounting year, the balance in the purchases returns account is closed by transferring to the purchases account.
5. Similarly, sales account has a credit balance and sales returns have a debit balance.
6. At the end of the accounting year, the balance in the sales returns account is closed by transferring to the sales account.
7. The various closing entries are as follows:
   (e.g.) for closing purchases returns account

Particulars	Debit ₹	Credit ₹
Purchases return A/c      Dr.      To Purchases A/c (Closing of purchase returns account by transferring to purchases account)	xxxx	xxxx