Chapter 4: Closing entries and the post-close trial balance

At the end of an accounting period, you “reset” the temporary accounts.

Temporary accounts include:

  • Revenues

  • Expenses

  • Dividends / Draws (depending on the business form)

The goal is to move the period’s net result into Retained Earnings (or the equity-equivalent in your COA), so the next period starts clean.

In LedgerLoom workbook mode, you do not hand-write closing entries in a CSV. Instead, LedgerLoom generates them deterministically from your adjusted trial balance.

By the end of this chapter, you will be able to:

  • explain what “closing” means and why we do it,

  • read closing_entries.csv,

  • read trial_balance_post_close.csv,

  • and understand the Balance-Sheet-only invariant.

What LedgerLoom generates

When you run a workbook build, LedgerLoom emits two end-of-cycle artifacts:

  • closing_entries.csv — a set of closing entries with entry_kind="closing"

  • trial_balance_post_close.csv — a post-close TB that contains only Assets / Liabilities / Equity accounts

This is a powerful learning tool:

  • You can compare LedgerLoom’s generated closing entries to your textbook’s “income summary” method.

  • You can verify that all temporary accounts are truly zeroed out.

Hands-on workflow

Use the same workbook project you used for Chapters 2–3.

Step 1 — Ensure you have at least one Revenue and one Expense

Closing is only interesting if you have temporary accounts.

If your project doesn’t yet include revenue/expense accounts, add a simple sale and an expense. For example:

  • Add to COA:

    • Revenue:ServiceRevenue

    • Expenses:SuppliesExpense (or any expense you used)

  • Add a sale transaction (example):

    T4,2026-01-05,Cleaning service paid in cash,Assets:Cash,300.00,0.00
T4,2026-01-05,Cleaning service paid in cash,Revenue:ServiceRevenue,0.00,300.00

Now rebuild:

ledgerloom check --project .
ledgerloom build --project . --run-id ch04

Step 2 — Read closing_entries.csv

Open:

outputs/ch04/artifacts/closing_entries.csv

You should see:

  • revenue accounts debited to bring them to zero,

  • expense accounts credited to bring them to zero,

  • the net difference posted to Equity:RetainedEarnings,

  • dividends/draws closed to retained earnings (not through income summary).

Dividends are not an expense

Dividends reduce equity, but they do not reduce income. That’s why LedgerLoom closes dividends/draws directly to retained earnings.

Step 3 — Read trial_balance_post_close.csv

Open:

outputs/ch04/artifacts/trial_balance_post_close.csv

This trial balance should contain only:

  • Assets

  • Liabilities

  • Equity (excluding dividends/draws)

If you still see Revenue or Expenses here, something is wrong: the books are not “reset.”

The invariant LedgerLoom enforces

LedgerLoom enforces a strict “system reset” invariant:

  • After closing, all Revenue and Expense balances must be exactly zero.

  • After closing, Dividends/Draws must be exactly zero.

If the invariant fails, the build fails. That’s intentional: it prevents you from carrying temporary balances into the next period.

Where we go next

With Chapters 1–4 in place, you now have the full spine of the accounting cycle:

transactions → unadjusted TB → adjustments → adjusted TB → closing → post-close TB

Later workbook chapters will build financial statements and introduce “gotcha detectors” that catch common student errors early.