Mistaken idea “Closing deletes the prior period's activity”

Correction

Closing resets temporary account balances to zero. It does not erase the original transactions from the journal or ledger.

Why the mistaken idea can seem reasonable

A post-closing trial balance does not list the year's revenue and expense balances. That can make it look as though the business has removed the transactions. The trial balance is only a list of balances at that stage; it is not the full journal or ledger.

What closing changes

Closing adds entries that offset temporary balances and transfer their effect to Retained Earnings. The original entries remain under their dates and references. You can still trace the year's sales and expenses after closing.

Permanent accounts carry forward. Cash remains an asset, unpaid wages remain a liability, and Accumulated Depreciation still records cost allocated to expense across periods. Retained Earnings carries forward too, with its updated balance.

Check your own entries

For each account you closed, ask whether it measures only the period's activity. Revenue, expenses, and dividends belong in that group. Cash, receivables, payables, Common Stock, and Retained Earnings do not reset.

If your closing entry credits Cash to pay expenses, you are recording a payment rather than closing the expense balance. If it removes Cash altogether, you have applied the reset to a permanent account.

When checking revenue in a ledger, distinguish customer transactions from the closing transfer. Adding the closing debit to the year's revenue credits produces the account's final balance, not the year's revenue.

The closing walkthrough shows how the original balance and the closing entry can coexist. The standalone example lets you check every account against a complete trial balance.