Course Outline
Join PRO

What is the difference between adjusting entries and closing entries?

Harold Averkamp, CPA, MBA

Definition of Adjusting Entries

Adjusting entries are made at the end of the accounting period (but prior to preparing the financial statements) in order for a company’s financial statements to be up-to-date on the accrual basis of accounting.

Examples of Adjusting Entries

The following are hypothetical examples of adjusting entries:

  • Each day the company incurs wages expense for its hourly-paid employees. However, the payroll that includes the workers’ wages for the last few days of the month won’t be recorded until after the accounting period ends. Therefore, the company must prepare an adjusting entry dated for the last day of the month that debits Wages Expense and credits Wages Payable for the labor used and the amount owed.
  • Similarly, the company uses electricity each day but receives only one bill per month, perhaps on the 20th day of the month (for electricity used through the 15th day of the month). The cost of the electricity used during the last half of the month must get into the accounting records through an adjusting entry for the financial statements to show all of the expenses for the month and all of the liabilities as of the end of the month.
  • Another adjusting entry records the depreciation of assets used in the business. Every month the company must prepare an adjusting entry that debits Depreciation Expense and credits Accumulated Depreciation to report the month’s depreciation.

Definition of Closing Entries

Closing entries are dated as of the last day of the accounting period, but are entered into the accounts after the financial statements are prepared. Closing entries involve the temporary accounts (the majority of which are the income statement accounts).

Example of Closing Entries

The closing entries will transfer all of the year-end balances from the revenue accounts and the expense accounts to a corporation’s retained earnings account or a sole proprietorship’s owner’s equity account. With today’s accounting software, the closing entries are effortless.

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews



PRO Plus

Lifetime Access (One-Time Fee)
Word Scrambles
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

Learn More About Harold

Certificates of

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus