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At the end of the accounting period, all ledger accounts pertaining to goods i.e., purchases, sales, purchases return, sales return, stock and other accounts concerning expenses, losses, incomes and gains are closed by transferring to Trading and Profit and Loss Accounts. These transferred entries are termed as closing entries. In other words, the closing entries concern all the items of the debit and credit side of Trading and Profit and Loss Ale i.e., Nominal Accounts.

It should be noted that closing entries are made for Nominal Accounts only.