Revenue accounts represent additions to equity during the month, and expense accounts represent decreases to equity. The transactions recorded in these accounts could have been made directly to equity. They are collected in separate accounts because information about individual revenue and expense items is of great interest to management. These accounts are temporary subdivisions of equity.
At the end of the year, all revenue and expense accounts are "closed" to equity, and they start the next period with a balance of zero. For example, assume that sales revenue for the year was 90,000. The Sales Revenue account has a credit balance. You close it by making an entry to the opposite side of the account.
Dr. Sales Revenue
The debit to Sales Revenue of 90,000 equals the credit balance of 90,000, so the balance in the account becomes zero.
Assuming that the Salaries Expense account was 70,000, you close it with the following entry:
Cr. Salary Expense
Profit/Loss is a temporary account. After closing the revenue and expense accounts for the year, the Profit/Loss account is closed to Retained Earnings. If the profit for the year is 20,000, the entry is as follows: