Year-end Close & Retained Earnings

Year-end Close is the annual accounting procedure that resets temporary revenue and expense accounts to zero at fiscal year-end, transferring the net profit or loss into cumulative Retained Earnings under Owner's Equity on the Balance Sheet.

Summary of the Annual Close Process

  1. Closing Revenue & Expenses: Temporary income statement accounts are closed.
  2. Transferring Net Result: Net Profit or Loss is transferred into Retained Earnings on the Balance Sheet.
  3. Resetting for the New Year: Revenue and expense ledgers start fresh at zero for the new fiscal year while Balance Sheet balances carry forward.

Frequently Asked Questions

Retained Earnings represent cumulative net profits generated by the business across past years that have not been distributed as owner draws, retained to fund growth or meet tax/zakat obligations.
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Income Statement
Statement closed at fiscal year-end
Owner's Equity
Where retained earnings accumulate

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