Cost of Goods Sold Closing Entry

Cost of Goods Sold (COGS) Closing Entry

At the end of an accounting period, companies need to close their temporary accounts, such as the Cost of Goods Sold (COGS), to the Income Summary or Retained Earnings account. This process ensures that the expenses are properly matched with the revenue for the period and resets the temporary accounts for the next accounting period.

Scenario: Closing Cost of Goods Sold

Assume a company has a Cost of Goods Sold (COGS) of ₹150,000 for the accounting period.

Journal Entry for Closing COGS:

Particulars	Debit (₹)	Credit (₹)
Income Summary A/c	150,000
To Cost of Goods Sold A/c		150,000
(Being Cost of Goods Sold closed to Income Summary)

Explanation:

1. Income Summary A/c is debited to transfer the cost of goods sold expense.
2. Cost of Goods Sold A/c is credited to close the COGS account.

Summary of Entry

1. Closing COGS:
   • Debit Income Summary A/c
   • Credit Cost of Goods Sold A/c

Detailed Example

Scenario: Closing Multiple Temporary Accounts Including COGS

Assume the company has the following balances at the end of the accounting period:

• Sales Revenue: ₹500,000
• Cost of Goods Sold: ₹150,000
• Salaries Expense: ₹100,000
• Rent Expense: ₹50,000

Step 1: Close Revenue Account

Particulars	Debit (₹)	Credit (₹)
Sales Revenue A/c	500,000
To Income Summary A/c		500,000
(Being Sales Revenue closed to Income Summary)

Step 2: Close Expense Accounts (Including COGS)

Particulars	Debit (₹)	Credit (₹)
Income Summary A/c	150,000
To Cost of Goods Sold A/c		150,000
(Being Cost of Goods Sold closed to Income Summary)

Particulars	Debit (₹)	Credit (₹)
Income Summary A/c	100,000
To Salaries Expense A/c		100,000
(Being Salaries Expense closed to Income Summary)

Particulars	Debit (₹)	Credit (₹)
Income Summary A/c	50,000
To Rent Expense A/c		50,000
(Being Rent Expense closed to Income Summary)

Final Entry: Close Income Summary to Retained Earnings

Assume the net income (Revenue - Expenses) is ₹200,000 (₹500,000 - ₹300,000).

Particulars	Debit (₹)	Credit (₹)
Income Summary A/c	200,000
To Retained Earnings A/c		200,000
(Being Net Income closed to Retained Earnings)

Summary of All Entries

1. Close Revenue:

   • Debit Sales Revenue A/c
   • Credit Income Summary A/c

2. Close Expenses (Including COGS):

   • Debit Income Summary A/c
   • Credit Cost of Goods Sold A/c
   • Credit Salaries Expense A/c
   • Credit Rent Expense A/c

3. Close Income Summary to Retained Earnings:

   • Debit Income Summary A/c
   • Credit Retained Earnings A/c