RICE - Closing Entry Order
RICE
RICE helps remember the order of closing entries at period end: Revenue, Income Summary, Capital (Retained Earnings), and Expenses. Close revenues first, then expenses to Income Summary, then Income Summary to Retained Earnings.
Breakdown
Revenue
Close all revenue accounts to Income Summary
Income Summary
Close Income Summary to Retained Earnings
Capital/Retained Earnings
Where net income ultimately lands
Expenses
Close all expense accounts to Income Summary
Example
Close Revenue: Debit Revenue, Credit Income Summary. Close Expenses: Debit Income Summary, Credit Expenses. Close Income Summary: Debit Income Summary, Credit Retained Earnings.
When to Use This
- ✓Performing year-end closing process
- ✓Preparing post-closing trial balance
- ✓Understanding the accounting cycle
- ✓Resetting temporary accounts
FAQs
Common questions about this mnemonic
Dividends are closed directly to Retained Earnings, not through Income Summary. Debit Retained Earnings, Credit Dividends. This happens after the Income Summary is closed.
Income Summary is a holding account that accumulates revenues and expenses temporarily. It shows net income before transferring to Retained Earnings. Some systems close directly to Retained Earnings without it.