Closing Entries for Revenue and Expense Accounts

Welcome back. In our previous lesson, we completed a crucial year-end task by calculating and recording the Corporate Income Tax (IS) expense. This was the final adjusting entry, meaning all of our revenue and expense accounts for the fiscal year are now complete and reflect their final balances.

This brings us to the next logical step in the accounting cycle: closing the books. Today's lesson will focus on how to prepare the journal entries to close revenue and expense accounts and transfer the net result to equity.

The purpose of these "closing entries" is twofold:

1. To reset all temporary accounts (revenues and expenses) to zero, preparing them for the next accounting period.
2. To formally transfer the year's net profit or loss, which we have carefully calculated, from the income statement to the balance sheet's equity section.

By the end of this lesson, you will understand the principles behind closing entries and be able to perform them according to the Moroccan Plan Comptable Général.

---

1. The "Why": Temporary vs. Permanent Accounts

Before we can close any accounts, we must understand the fundamental difference between two types of accounts:

• Permanent Accounts: These are the balance sheet accounts (Assets, Liabilities, and Equity - Classes 1 to 5). Their balances are not closed at year-end. Instead, they are carried forward to become the opening balances for the next accounting period. For example, the cash balance on December 31st is the same cash balance on January 1st.

• Temporary Accounts: These are the income statement accounts (Expenses/Charges - Class 6, and Revenues/Produits - Class 7). Their purpose is to measure financial performance over a specific period (e.g., one year). To measure the next year's performance accurately, we must start with a clean slate. Therefore, these accounts must be reset to zero at the end of each period.

To get a clear explanation of this concept and an overview of the closing process, please watch the first part of the following video.

---

2. The Closing Process: A Conceptual Framework

In international accounting standards (like US GAAP), the closing process is often simplified by using a temporary holding account called Income Summary. The process generally follows four steps:

1. Close Revenue Accounts: Debit each revenue account for its balance and credit the total to Income Summary.
2. Close Expense Accounts: Credit each expense account for its balance and debit the total to Income Summary.
3. Close Income Summary: The balance in Income Summary now equals the net income (or loss). This balance is then closed to Retained Earnings (an equity account).
4. Close Dividends: The Dividends account (or Withdrawals) is closed directly to Retained Earnings.

The image below shows a clear example of these four journal entries.

This four-step method provides a solid conceptual foundation. However, the Moroccan accounting system uses a more detailed and structured approach.

---

3. The Moroccan Method: Closing via Class 8 Accounts

The Plan Comptable Général Marocain (PCGM) does not use a single Income Summary account. Instead, it uses a series of "result accounts" from Class 8 to determine the net result in a cascading manner. This process mirrors the structure of the Moroccan income statement, the Compte de Produits et Charges (CPC).

This "cascade" method provides a clear audit trail of how the final net profit was calculated directly within the general ledger.

To understand this method, let's first look at an overview of the process.

The core idea is to close different categories of revenues and expenses into specific Class 8 accounts, which are then consolidated.

The key document below from OFPPT, a professional training institution in Morocco, details this procedure. We will follow its logic.

A Practical Example

Let's apply this method to a simplified adjusted trial balance for "SME Services SARL" as of December 31, 2023.

Account No.	Account Name	Debit	Credit
7111	Ventes de marchandises		800,000
7381	Intérêts et produits assimilés		10,000
6111	Achats de marchandises	350,000
6171	Rémunérations du personnel	200,000
6311	Intérêts des emprunts et dettes	15,000
6701	Impôts sur les bénéfices	49,000

We will now perform the closing entries step-by-step.

Step 1: Close Operating Accounts (Classe 6 & Classe 7) to 8100 - Résultat d'exploitation

First, we close the operating revenue account.

Date	Account No.	Account Name	Debit	Credit
31/12/23	7111	Ventes de marchandises	800,000
	8100	Résultat d'exploitation		800,000
		Clôture du compte de produits d'exploitation

Next, we close all operating expense accounts.

Date	Account No.	Account Name	Debit	Credit
31/12/23	8100	Résultat d'exploitation	550,000
	6111	Achats de marchandises		350,000
	6171	Rémunérations du personnel		200,000
		Clôture des comptes de charges d'exploitation

At this point, the balance of account 8100 is 800,000 (Cr) - 550,000 (Dr) = 250,000 (Cr). This is the Operating Profit.

Step 2: Close Financial Accounts to 8300 - Résultat financier

Date	Account No.	Account Name	Debit	Credit
31/12/23	7381	Intérêts et produits assimilés	10,000
	8300	Résultat financier		10,000
		Clôture du compte de produits financiers

Date	Account No.	Account Name	Debit	Credit
31/12/23	8300	Résultat financier	15,000
	6311	Intérêts des emprunts et dettes		15,000
		Clôture du compte de charges financières

The balance of account 8300 is 10,000 (Cr) - 15,000 (Dr) = 5,000 (Dr). This is the Financial Loss.

Step 3: Consolidate Results into 8890 - Résultat net de l'exercice

Now, we transfer the intermediate results and the tax expense to a final summary account to find the net result.

Date	Account No.	Account Name	Debit	Credit
31/12/23	8100	Résultat d'exploitation	250,000
	8890	Résultat net de l'exercice		250,000
		Virement du résultat d'exploitation
31/12/23	8890	Résultat net de l'exercice	5,000
	8300	Résultat financier		5,000
		Virement du résultat financier
31/12/23	8890	Résultat net de l'exercice	49,000
	6701	Impôts sur les bénéfices		49,000
		Virement de l'impôt sur les bénéfices

The balance of account 8890 is 250,000 (Cr) - 5,000 (Dr) - 49,000 (Dr) = 196,000 (Cr). This is the Net Profit for the year.

Step 4: Close the Final Result to Equity

The final step is to move this net profit into the balance sheet. Since it's a profit, we use account 1191.

Date	Account No.	Account Name	Debit	Credit
31/12/23	8890	Résultat net de l'exercice	196,000
	1191	Résultat net de l'exercice (bénéfice)		196,000
		Affectation du résultat net de l'exercice

After these entries, all accounts in Class 6, 7, and 8 have a balance of zero. The net result of the year's operations is now correctly recorded in the company's equity.

Test your understanding!

Given the following accounts from an adjusted trial balance:

• 7121 - Ventes de biens produits au Maroc: 150,000 (Credit)
• 6121 - Achats de matières premières: 40,000 (Debit)
• 6131 - Entretien et réparations: 10,000 (Debit)

Prepare the journal entries required to close these operating accounts to the 8100 - Résultat d'exploitation account.

Show answer

Entry 1: Close the revenue account

Date	Account No.	Account Name	Debit	Credit
31/12/N	7121	Ventes de biens produits au Maroc	150,000
	8100	Résultat d'exploitation		150,000
		Clôture du compte de produits

Entry 2: Close the expense accounts

Date	Account No.	Account Name	Debit	Credit
31/12/N	8100	Résultat d'exploitation	50,000
	6121	Achats de matières premières		40,000
	6131	Entretien et réparations		10,000
		Clôture des comptes de charges

After these entries, the operating profit of 100,000 DH (150,000 - 50,000) would sit as a credit balance in account 8100, ready for the next step of the cascade.

---

Conclusion

Today, you have learned one of the final and most important procedural steps in the accounting cycle. Mastering closing entries is essential for ensuring the integrity of financial data from one year to the next.

Key Takeaways:

• Closing entries are necessary to reset temporary accounts (revenues and expenses) to zero for the next accounting period.
• The net profit or loss for the period is transferred from the temporary accounts to a permanent equity account (Retained Earnings or Résultat net de l'exercice).
• The Moroccan Plan Comptable uses a structured "cascade" of Class 8 accounts to close the books, which provides a clear calculation of the results in stages (d'exploitation, financier, etc.).
• After these entries are posted, all Class 6, 7, and 8 accounts will have a zero balance.

Preview of the Next Lesson:
With all temporary accounts closed, the only accounts left with balances are the permanent, balance sheet accounts (Assets, Liabilities, and Equity). Our next and final step in this module will be to prepare the final trial balance after closing. This report confirms that debits still equal credits and serves as the official starting point for the new fiscal year.