How, when and why do you prepare closing entries?

To apply the matching basis of accounting which requires to carry every financial period with its revenues and it's expenses and itt happen in the end of the financial period

Closing Entry and Opening Entry

before we writing accounts in books 

and in end of year we make transaction to carry balance for financial statements

Revenues and Expenses to income Statement

and net Profit transfer from income statement to Balance Sheet

and we make transaction to transfer other balance like assets, liabilities, owner's equity to balance sheet

and this called closing entry, debit is be credit and credit will be debit and other side will be balance sheet

image that balance sheet like T account so will be increase debit must be balance sheet come in debit in transaction like assets

so in book all balances will be zero only one account only not close that's is balance sheet

so next year you will make opening balance

it's will be balance sheet will come credit to what item in debit side in balance sheet

like assets was showing in debit side so when make transaction assets is debit and balance sheet is credit the amount in balance sheet for assets will come zero

and also for all like this

so all accounts will be penning again and balance sheet account will be zero

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 normal in study books in university doctor said closing entry balance sheet will be debit and assets will be credit, and liabilities , owner's equity will be debit and balance sheet will be credit and opening entry assets will be debit and balance sheet will be credit and liabilities , owner's equity will be credit and balance sheet will be debit

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i hope that you now understand how and why we make closing entry and opening entry

nowadays because we used accounting software we no need to make closing or opening entry<

because the software doing that's and some time some software need technical to year file and opening new year file

Thanks & Regards

Answer for HOW: By closing all accounts such as income and expense to prepare summary

Answer for Why: To get the summary or the net vale at the end of period

Answer for When: At the end of the accounting year as per the company

The closing entries are made at the year end to match the expenses against the revenue of same accounting period so that accurate net profit or loss is determined. For that all the expenses & revenue  & inventory accounts are closed to profit or loss account. Profit or loss  & withdrawal ( in case of sole proprietorship) are closed to equity account. 

The reason for the closing entries is to ensure that each revenue and expense account will begin the next accounting year with a zero balance. The closing entries require that a debit be entered into each of the temporary accounts having a credit balance.

Many Thanks for invitation

Lets Divide the answer in three part for better and clear understanding:

How:

The process of closing entry start from collecting information from each source to make sure all the bill payable, receivables, expenses, invoices of sales voucher etc. are entered in system, then we have to check bank reconciliation, inter company transaction, we have to make sure all provision entries like RDD, depreciation etc. are entered and we can have balance confirmation in place to have cross verification, in short we have to make sure nothing is pending from entry view point.

When:

Depending upon policy of management the closing entry procedure is conducted, it may me monthly or

Quarterly or yearly.

Why:

The main purpose of Bookkeeping and accountancy department is to make result of the day to day transaction records without which purpose will not be served. Unless the books are not closed properly the correct report can not be generated, hence closing entries play very important role for report generation.

We prepare closing entries for the temporary accounts such as the revenue and expense accounts (see earlier Q&A). The closing entries are recorded after the financial statements for the accounting year are prepared. The reason for the closing entries is to ensure that each revenue and expense account will begin the next accounting year with a zero balance.The closing entries require that a debit be entered into each of the temporary accounts having a credit balance. The debit entered must be exactly the amount of the credit balance prior to the closing entry. The objective is to get the account balance to be zero.The closing entries also require that a credit be entered into each of the temporary accounts having a debit balance. The credit amount that is entered must be exactly the amount of the debit balance prior to the closing entry.The net amount of the debits and credits in the closing entries for the income statement accounts is the amount of the income or loss. This net amount will end up in the balance sheet account Retained Earnings (part of stockholders' equity of a corporation) or in the owner's capital account (part of owner's equity in a sole proprietorship). In manual systems, there is often an Income Summary account before the entry into the equity account.

closing entries are done at end of year to determine P&L while matching expenses against revenue. 

First, all revenue accounts are transferred to income summary. This is done through a journal entry debiting all revenue accounts and crediting income summary. Next, the same process is performed for expenses. All expenses are closed out by crediting the expense accounts and debiting income summary , Third, the income summary account is closed. If a company’s revenues were greater than its expenses, the closing entry entails debiting income summary and crediting retained earnings. In the event of a loss for the period, the income summary account needs to be credited and retained earnings are reduced through a debit. Finally, dividends are closed directly to retained earnings. The retained earnings account is reduced by the amount paid out in dividends through a debit, and the dividends expense is credited

Closing entries prepared to apply the Matching Principle of Accounting. Closing Entries may be prepared monthly, quarterly or annually, it’s all about management decision, usually prepared at the end of fiscal year after the finalization of Financial Statements. Purpose of such entries is to close all temporary accounts (all revenue and expense accounts). The main purpose of such entries is to run all temporary accounts with zero balance at the start of new fiscal year. All such type of accounts closed in Income summary Account/Profit Loss Account, which is also a temporary account and closed in Owner’s Equity Account or Capital Account.

The closing entries are recorded after the financial statements for the accounting year are prepared. The reason for the closing entries is to ensure that each revenue and expense account will begin the next accounting year with a zero balance.