Year-End Accounting Entries - Complete Guide

YEAR-END ACCOUNTING ENTRIES

Finalisation of Accounts for Different Business Entities

FY 2024-25 & FY 2025-26

⚠️ DISCLAIMER: This resource is for educational purposes only and does not constitute legal or financial advice. Please consult with qualified professionals for specific accounting guidance.

📋 INTRODUCTION TO YEAR-END ACCOUNTING ENTRIES

What are Year-End Accounting Entries?

Year-end accounting entries, also known as closing entries or adjusting entries, are journal entries made at the end of an accounting period to finalize the books of accounts. These entries ensure that all revenues and expenses are properly recorded in the correct period and that the financial statements accurately reflect the business's financial position.

Purpose of Year-End Entries

Matching Principle: Ensure expenses are matched with revenues in the same period
Accrual Basis: Record all accrued and deferred items properly
True & Fair View: Present accurate financial statements
Compliance: Meet statutory and regulatory requirements
Decision Making: Provide reliable information for stakeholders

Types of Year-End Entries

Type	Purpose	Examples
Adjusting Entries	Update accounts to accrual basis	Prepaid expenses, Accrued income, Depreciation
Closing Entries	Transfer temporary accounts to permanent accounts	Transfer to P&L Account, Capital Account
Reversing Entries	Reverse certain adjusting entries at start of new period	Accrued expenses, Accrued income (optional)

👤 SOLE PROPRIETORSHIP - YEAR-END ACCOUNTING ENTRIES

Overview

A sole proprietorship is a business owned and operated by a single individual. The owner has unlimited liability and the business income is taxed as the owner's personal income.

Key Characteristics

Single Owner: One person owns and controls the business
Unlimited Liability: Owner personally liable for all debts
Simple Structure: Minimal legal formalities
Capital Account: Owner's equity shown in one capital account
Drawings: Owner's withdrawals recorded separately

Step-by-Step Year-End Closing Process

Step 1: Adjusting Entries

Particulars	Debit (₹)	Credit (₹)
1. Outstanding Expenses
Expense A/c Dr.	XX,XXX
To Outstanding Expenses A/c		XX,XXX
(Being outstanding expenses recorded)
2. Prepaid Expenses
Prepaid Expenses A/c Dr.	XX,XXX
To Expense A/c		XX,XXX
(Being prepaid expenses adjusted)
3. Accrued Income
Accrued Income A/c Dr.	XX,XXX
To Income A/c		XX,XXX
(Being accrued income recorded)
4. Income Received in Advance
Income A/c Dr.	XX,XXX
To Unearned Income A/c		XX,XXX
(Being advance income deferred)
5. Depreciation on Fixed Assets
Depreciation A/c Dr.	XX,XXX
To Accumulated Depreciation A/c		XX,XXX
(Being depreciation provided on assets)
6. Bad Debts Written Off
Bad Debts A/c Dr.	XX,XXX
To Debtors A/c		XX,XXX
(Being bad debts written off)
7. Provision for Doubtful Debts
Provision for Doubtful Debts A/c Dr.	XX,XXX
To Provision for Doubtful Debts A/c		XX,XXX
(Being provision created/adjusted for doubtful debts)

Step 2: Closing Income & Expense Accounts

Particulars	Debit (₹)	Credit (₹)
1. Transfer Revenue to Profit & Loss Account
Sales A/c Dr.	X,XX,XXX
Other Income A/c Dr.	XX,XXX
To Profit & Loss A/c		X,XX,XXX
(Being revenue accounts closed to P&L)
2. Transfer Expenses to Profit & Loss Account
Profit & Loss A/c Dr.	X,XX,XXX
To Purchases A/c		X,XX,XXX
To Salaries A/c		XX,XXX
To Rent A/c		XX,XXX
To Depreciation A/c		XX,XXX
To Other Expenses A/c		XX,XXX
(Being expense accounts closed to P&L)

Step 3: Transfer Net Profit/Loss to Capital Account

Particulars	Debit (₹)	Credit (₹)
In case of Net Profit:
Profit & Loss A/c Dr.	X,XX,XXX
To Capital A/c		X,XX,XXX
(Being net profit transferred to capital)
In case of Net Loss:
Capital A/c Dr.	X,XX,XXX
To Profit & Loss A/c		X,XX,XXX
(Being net loss transferred to capital)

Step 4: Closing Drawings Account

Particulars	Debit (₹)	Credit (₹)
Capital A/c Dr.	XX,XXX
To Drawings A/c		XX,XXX
(Being drawings closed to capital account)

Important Points for Sole Proprietorship

Interest on Capital: May be charged if desired by the proprietor
Interest on Drawings: Can be charged to discourage excessive withdrawals
Salary to Proprietor: Not an expense; treated as drawings
Income Tax: Paid by proprietor personally, not a business expense
Book Maintenance: Books under Cash/Mercantile basis as per Income Tax Act

🤝 PARTNERSHIP FIRM - YEAR-END ACCOUNTING ENTRIES

Overview

A partnership is a business structure where two or more persons come together to carry on a business with a view to profit. It is governed by the Indian Partnership Act, 1932.

Key Characteristics

Multiple Partners: Minimum 2, Maximum 50 partners (as per Companies Act, 2013)
Partnership Deed: Agreement defining rights, duties, and profit sharing
Unlimited Liability: Partners jointly and severally liable
Separate Capital Accounts: Each partner has individual capital account
Profit Sharing Ratio: As per partnership deed or equally

Step-by-Step Year-End Closing Process

Step 1: Adjusting Entries (Similar to Sole Proprietorship)

All adjusting entries for outstanding expenses, prepaid expenses, accrued income, depreciation, bad debts, etc., are made similar to sole proprietorship.

Step 2: Interest on Capital (If provided in Partnership Deed)

Particulars	Debit (₹)	Credit (₹)
Interest on Capital A/c Dr.	XX,XXX
To Partner A's Capital A/c		XX,XXX
To Partner B's Capital A/c		XX,XXX
(Being interest on capital provided @ X% p.a.)

Step 3: Interest on Drawings (If provided in Partnership Deed)

Particulars	Debit (₹)	Credit (₹)
Partner A's Capital A/c Dr.	X,XXX
Partner B's Capital A/c Dr.	X,XXX
To Interest on Drawings A/c		XX,XXX
(Being interest on drawings charged @ X% p.a.)

Step 4: Salary/Commission to Partners (If provided in Partnership Deed)

Particulars	Debit (₹)	Credit (₹)
Partner's Salary A/c Dr.	XX,XXX
To Partner A's Capital A/c		XX,XXX
(Being salary payable to partner)

Step 5: Closing Income & Expense Accounts to P&L Account

Particulars	Debit (₹)	Credit (₹)
Transfer All Income Accounts:
Sales A/c Dr.	X,XX,XXX
Interest on Drawings A/c Dr.	X,XXX
Other Income A/c Dr.	XX,XXX
To Profit & Loss A/c		X,XX,XXX
(Being income accounts closed to P&L)
Transfer All Expense Accounts:
Profit & Loss A/c Dr.	X,XX,XXX
To Purchases A/c		X,XX,XXX
To Interest on Capital A/c		XX,XXX
To Partner's Salary A/c		XX,XXX
To Other Expenses A/c		XX,XXX
(Being expense accounts closed to P&L)

Step 6: Transfer Net Profit/Loss to Partners' Capital Accounts

Particulars	Debit (₹)	Credit (₹)
In case of Net Profit (Profit Sharing Ratio - A:B = 3:2):
Profit & Loss A/c Dr.	X,XX,XXX
To Partner A's Capital A/c (3/5)		XX,XXX
To Partner B's Capital A/c (2/5)		XX,XXX
(Being net profit distributed as per profit sharing ratio)
In case of Net Loss:
Partner A's Capital A/c (3/5) Dr.	XX,XXX
Partner B's Capital A/c (2/5) Dr.	XX,XXX
To Profit & Loss A/c		X,XX,XXX
(Being net loss distributed as per profit sharing ratio)

Step 7: Closing Drawings Accounts

Particulars	Debit (₹)	Credit (₹)
Partner A's Capital A/c Dr.	XX,XXX
To Partner A's Drawings A/c		XX,XXX
(Being drawings closed to capital account)
Partner B's Capital A/c Dr.	XX,XXX
To Partner B's Drawings A/c		XX,XXX
(Being drawings closed to capital account)

Important Points for Partnership

Partnership Deed: Governs all profit distribution, salary, interest provisions
Order of Appropriation: Interest on Capital → Partner's Salary → Profit/Loss Distribution
Interest on Capital: Charged whether profit or loss (if provided in deed)
Partner's Salary: Not an expense of business; charged to P&L Appropriation
Profit & Loss Appropriation Account: Prepared to show distribution of profits
Fixed vs Fluctuating Capital: Can maintain either system

🏢 PRIVATE LIMITED COMPANY - YEAR-END ACCOUNTING ENTRIES

Overview

A Private Limited Company is a company incorporated under the Companies Act, 2013, with limited liability and restrictions on transfer of shares. It is a separate legal entity from its shareholders.

Key Characteristics

Separate Legal Entity: Company exists independently of owners
Limited Liability: Shareholders liable only to extent of shares
Minimum 2, Maximum 200 Members: As per Companies Act, 2013
Share Capital: Divided into equity and preference shares
Statutory Compliance: Must comply with Companies Act, Income Tax Act
Separate Taxation: Company taxed as separate entity

Step-by-Step Year-End Closing Process

Step 1: Adjusting Entries

All adjusting entries similar to sole proprietorship plus additional corporate entries:

Particulars	Debit (₹)	Credit (₹)
1. Provision for Income Tax
Income Tax Expense A/c Dr.	X,XX,XXX
To Provision for Income Tax A/c		X,XX,XXX
(Being provision for income tax created)
2. Provision for Proposed Dividend
Dividend A/c Dr.	XX,XXX
To Proposed Dividend A/c		XX,XXX
(Being provision for proposed dividend made)
3. Transfer to Reserves
Profit & Loss Appropriation A/c Dr.	XX,XXX
To General Reserve A/c		XX,XXX
(Being amount transferred to reserves)

Step 2: Closing Income & Expense Accounts to P&L Account

Particulars	Debit (₹)	Credit (₹)
Transfer All Income to P&L:
Sales A/c Dr.	XX,XX,XXX
Other Operating Revenue A/c Dr.	X,XX,XXX
Non-Operating Income A/c Dr.	XX,XXX
To Profit & Loss A/c		XX,XX,XXX
(Being revenue accounts closed to P&L)
Transfer All Expenses to P&L:
Profit & Loss A/c Dr.	XX,XX,XXX
To Cost of Goods Sold A/c		XX,XX,XXX
To Operating Expenses A/c		X,XX,XXX
To Finance Costs A/c		XX,XXX
To Depreciation A/c		XX,XXX
(Being expense accounts closed to P&L)

Step 3: Income Tax Provision Entry

Particulars	Debit (₹)	Credit (₹)
Profit & Loss A/c Dr.	X,XX,XXX
To Income Tax Expense A/c		X,XX,XXX
(Being income tax expense charged to P&L)

Step 4: Transfer Net Profit After Tax to P&L Appropriation Account

Particulars	Debit (₹)	Credit (₹)
Profit & Loss A/c Dr.	X,XX,XXX
To Profit & Loss Appropriation A/c		X,XX,XXX
(Being net profit after tax transferred for appropriation)

Step 5: Appropriation of Profits

Particulars	Debit (₹)	Credit (₹)
1. Transfer to Statutory Reserves (if applicable):
Profit & Loss Appropriation A/c Dr.	XX,XXX
To Statutory Reserve A/c		XX,XXX
(Being statutory reserve created)
2. Transfer to General Reserve:
Profit & Loss Appropriation A/c Dr.	XX,XXX
To General Reserve A/c		XX,XXX
(Being general reserve created)
3. Proposed Dividend:
Profit & Loss Appropriation A/c Dr.	XX,XXX
To Proposed Dividend A/c		XX,XXX
(Being dividend proposed for shareholders)

Step 6: Transfer Balance to Retained Earnings

Particulars	Debit (₹)	Credit (₹)
Profit & Loss Appropriation A/c Dr.	XX,XXX
To Retained Earnings A/c		XX,XXX
(Being balance profit carried forward to retained earnings)

Important Points for Private Limited Company

Corporate Tax: Company pays income tax as separate entity (Currently 25% for eligible companies, 30% otherwise)
Dividend Declaration: Requires Board resolution and shareholder approval
Book Closure: Books closed for specific period for AGM purposes
Financial Statements: Must prepare as per Schedule III of Companies Act
Audit Mandatory: Statutory audit required under Section 139
Reserves: Mandatory for certain companies (e.g., banks, NBFCs)
CSR Provision: If criteria met under Section 135

🏛️ PUBLIC LIMITED COMPANY - YEAR-END ACCOUNTING ENTRIES

Overview

A Public Limited Company is a company whose shares are traded freely on a stock exchange and can be bought by the general public. It is governed by the Companies Act, 2013, and SEBI regulations.

Key Characteristics

Public Shareholding: Shares listed and traded on stock exchanges
Minimum 7 Shareholders: No maximum limit
Minimum 3 Directors: At least one-third must be independent
SEBI Regulations: Must comply with listing regulations
Enhanced Disclosure: Quarterly results, annual reports mandatory
Market Capitalization: Value determined by stock market

Step-by-Step Year-End Closing Process

Note: The basic closing entries are similar to Private Limited Company, with additional entries specific to public companies.

Step 1: All Standard Adjusting Entries

Same as Private Limited Company including depreciation, provisions, accruals, etc.

Step 2: Additional Corporate-Specific Entries

Particulars	Debit (₹)	Credit (₹)
1. Provision for Bonus Shares (if declared):
Profit & Loss Appropriation A/c Dr.	X,XX,XXX
To Share Capital A/c		X,XX,XXX
(Being bonus shares issued out of reserves)
2. Transfer from Capital Reserve/Securities Premium:
Securities Premium Reserve A/c Dr.	XX,XXX
To Share Capital A/c		XX,XXX
(Being securities premium used for bonus issue)
3. Debenture Interest Provision:
Interest on Debentures A/c Dr.	XX,XXX
To Provision for Interest on Debentures A/c		XX,XXX
(Being debenture interest provided)
4. Employee Stock Option (ESOP) Expense:
ESOP Expense A/c Dr.	XX,XXX
To Employee Stock Options Outstanding A/c		XX,XXX
(Being ESOP expense recognized)

Step 3: Closing Income & Expense Accounts to P&L

Similar to Private Limited Company - all revenue and expense accounts closed to Profit & Loss Account

Step 4: Income Tax and Deferred Tax

Particulars	Debit (₹)	Credit (₹)
Current Tax:
Income Tax Expense A/c Dr.	X,XX,XXX
To Provision for Current Tax A/c		X,XX,XXX
(Being current tax provision made)
Deferred Tax:
Deferred Tax Expense A/c Dr.	XX,XXX
To Deferred Tax Liability A/c		XX,XXX
(Being deferred tax liability created as per AS-22/Ind AS-12)

Step 5: Appropriation of Profits

Particulars	Debit (₹)	Credit (₹)
Profit & Loss A/c Dr.	X,XX,XXX
To Profit & Loss Appropriation A/c		X,XX,XXX
(Being profit transferred for appropriation)
Then appropriations made in following order:
a) Statutory Reserve (if applicable):
Profit & Loss Appropriation A/c Dr.	XX,XXX
To Statutory Reserve A/c		XX,XXX
b) General Reserve:
Profit & Loss Appropriation A/c Dr.	XX,XXX
To General Reserve A/c		XX,XXX
c) Proposed Interim Dividend:
Profit & Loss Appropriation A/c Dr.	X,XX,XXX
To Interim Dividend Payable A/c		X,XX,XXX
d) Proposed Final Dividend:
Profit & Loss Appropriation A/c Dr.	X,XX,XXX
To Proposed Final Dividend A/c		X,XX,XXX

Step 6: Transfer to Retained Earnings

Particulars	Debit (₹)	Credit (₹)
Profit & Loss Appropriation A/c Dr.	XX,XXX
To Retained Earnings A/c		XX,XXX
(Being unappropriated profit carried to retained earnings)

Important Points for Public Limited Company

Quarterly Reporting: Required as per SEBI (LODR) Regulations, 2015
Independent Directors: Minimum one-third of board must be independent
Audit Committee: Mandatory composition and responsibilities
CSR Compliance: Section 135 if turnover/net worth/profit criteria met
Related Party Transactions: Enhanced disclosure requirements
Ind AS Applicability: For companies above specified threshold
Board Approval: Required for accounts before presentation to shareholders
AGM Timeline: Within 6 months of financial year end

📊 COMPARATIVE ANALYSIS OF YEAR-END ENTRIES

Comparison Table: Different Business Entities

Aspect	Sole Proprietorship	Partnership	Private Limited	Public Limited
Legal Status	Not separate from owner	Not separate from partners	Separate legal entity	Separate legal entity
Ownership	Single owner	2-50 partners	2-200 members	Minimum 7, no maximum
Liability	Unlimited	Unlimited (joint & several)	Limited to share capital	Limited to share capital
Capital Account	Single capital account	Separate for each partner	Share capital	Share capital (listed)
Profit Distribution	Entire profit to owner	As per profit sharing ratio	Dividend to shareholders	Dividend to shareholders
Interest on Capital	Optional	As per partnership deed	Not applicable	Not applicable
Salary to Owners	Treated as drawings	Charged to P&L Appropriation	Managerial remuneration	Managerial remuneration
Income Tax	On owner's income (slab rates)	On firm (30%) + partners' share	On company (25-30%)	On company (25-30%)
Audit	If turnover > ₹1 crore	If turnover > ₹1 crore	Mandatory	Mandatory
Reserves	Not mandatory	Not mandatory	Optional (mandatory for some)	Mandatory as per regulations
Dividend Declaration	Not applicable	Not applicable	Board + Shareholder approval	Board + Shareholder approval
Closure Process	Simple	Moderate	Complex	Most complex
Regulatory Compliance	Minimal	Moderate	Extensive (Companies Act)	Most extensive (Companies Act + SEBI)
Financial Statements	Basic statements	Basic statements	As per Schedule III	As per Schedule III + SEBI
Deferred Tax	Not applicable	Not applicable	Required (if Ind AS applicable)	Mandatory

Key Differences in Closing Entries

Entry Type	Sole Proprietorship	Partnership	Company
Capital Accounts	One capital account	Multiple partner capital accounts	Share capital + reserves
Drawings	Closed to capital account	Closed to respective partner's capital	Not applicable (dividend instead)
Profit Transfer	To single capital account	To partners as per ratio	To retained earnings after tax
Tax Provision	Not in books (personal)	In books at firm level	In books with deferred tax
Appropriations	Direct to capital	P&L Appropriation A/c used	P&L Appropriation A/c used

📈 YEAR-END CLOSING PROCESS FLOWCHART

Universal Year-End Closing Process Flow

START: Financial Year End (31st March)

↓

STEP 1: Trial Balance Preparation

Extract trial balance from books of accounts

↓

STEP 2: Physical Verification

Stock, Fixed Assets, Cash, Bank Reconciliation

↓

STEP 3: Adjusting Entries

• Outstanding Expenses
• Prepaid Expenses
• Accrued Income
• Unearned Income
• Depreciation
• Bad Debts & Provisions

↓

Is it a Company?

YES

↓

Additional Corporate Entries:
• Income Tax Provision
• Deferred Tax (if applicable)
• Managerial Remuneration
• ESOP Expense (if any)

↓

Is it a Partnership?

YES

↓

Partnership Specific:
• Interest on Capital
• Interest on Drawings
• Partner's Salary

↓

Sole Proprietorship:
Simple closing to capital

↓

STEP 4: Close Revenue Accounts

Transfer all income to Profit & Loss Account

↓

STEP 5: Close Expense Accounts

Transfer all expenses to Profit & Loss Account

↓

STEP 6: Calculate Net Profit/Loss

Revenue - Expenses = Net Profit/Loss

↓

Type of Entity?

Sole Proprietorship

↓

Transfer P&L to Capital A/c
Close Drawings to Capital

Partnership

↓

P&L Appropriation A/c:
• Distribute profit as per ratio
• Close drawings to capital

Company

↓

P&L Appropriation A/c:
• Reserves
• Dividend
• Retained Earnings

↓

STEP 7: Prepare Final Accounts

• Trading Account (if applicable)
• Profit & Loss Account
• Balance Sheet

↓

STEP 8: Post-Closing Activities

• Audit (if required)
• Tax Filing
• AGM (for companies)
• Books Reopened for New FY

↓

END: Books Finalized & New FY Begins

🧠 YEAR-END ACCOUNTING - COMPREHENSIVE MIND MAP

YEAR-END
ACCOUNTING
ENTRIES

TYPES OF
ENTITIES

Sole
Proprietorship

• Single Owner
• Unlimited Liability
• Simple Structure

Partnership
Firm

• 2-50 Partners
• Partnership Deed
• Joint Liability

Private
Limited

• 2-200 Members
• Limited Liability
• Companies Act

Public
Limited

• Listed Shares
• Min 7 Members
• SEBI Regulations

ADJUSTING
ENTRIES

Accruals &
Deferrals

• Outstanding Exp
• Prepaid Exp
• Accrued Income
• Unearned Income

Depreciation
& Assets

• Asset Depreciation
• Accumulated Dep
• Asset Disposal

Receivables
Management

• Bad Debts
• Provision for DD
• Debt Recovery

PARTNERSHIP
SPECIFIC

Interest on
Capital

• As per deed
• Charged to P&L
• Credited to capital

Interest on
Drawings

• Charged if in deed
• Income to firm
• Debited to capital

Partner's
Salary

• Appropriation
• Not business exp
• As per deed

Profit
Distribution

• Profit sharing ratio
• To capital accounts
• P&L Appropriation

COMPANY
SPECIFIC

Income Tax
Provision

• Current Tax
• Deferred Tax
• Tax Expense

Reserves &
Surplus

• General Reserve
• Statutory Reserve
• Capital Reserve

Dividend
Distribution

• Interim Dividend
• Final Dividend
• Board Approval

Retained
Earnings

• Unappropriated
• Carry Forward
• Future Use

CLOSING
PROCESS

Close
Revenue

• Sales
• Other Income
• To P&L A/c

Close
Expenses

• All Expenses
• To P&L A/c
• Calculate Net P/L

Transfer
Profit/Loss

• To Capital (SP)
• To Partners (PP)
• To RE (Company)

Close
Drawings

• To Capital A/c
• SP & Partnership
• Not in Company

FINAL
ACCOUNTS

Trading
Account

• Gross Profit/Loss
• For trading concerns
• Sales - COGS

Profit & Loss
Account

• Net Profit/Loss
• All Income & Exp
• For all entities

Balance
Sheet

• Assets & Liabilities
• Financial Position
• As on 31st March

COMPLIANCE
& AUDIT

Statutory
Audit

• Mandatory (Co.)
• If turnover > 1Cr
• Independent CA

Tax
Returns

• Income Tax Return
• GST Returns
• TDS Returns

AGM
(Companies)

• Within 6 months
• Approve Accounts
• Declare Dividend

KEY
PRINCIPLES

Matching
Principle

• Match Rev & Exp
• Same Period
• Accurate Results

Accrual
Basis

• When earned/incurred
• Not cash basis
• True picture

True & Fair
View

• Accurate position
• No manipulation
• Stakeholder trust