Closing entries are necessary so that retained earnings will begin each period with a zero balance.

Retained Earnings

The cumulative net income of a company that is retained within the company for reinvestment, rather than being paid out as dividends.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances in temporary accounts to permanent accounts, preparing the books for the next period.

Zero Balance

Zero balance describes an account status in which the available balance is exactly zero, indicating no funds are currently available or outstanding.