What is the difference between a closing and a reversing entry?

Closing and reversing entries play distinct roles in the bookkeeping process. Closing entries transfer the balances of temporary accounts (like revenues, expenses, and dividends) to permanent ones, typically the owner’s equity or retained earnings, effectively resetting the temporary accounts for the next accounting period. On the other hand, reversing entries negate certain adjustments from a prior period, ensuring that transactions like accrued expenses or revenues are not double-counted. While both are integral to comprehensive bookkeeping services, closing entries finalize a period’s accounts, whereas reversing entries set the stage for accurate recording in the subsequent period.

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