What characterizes a closing entry in accounting?

A closing entry in accounting is specifically designed to move the balances from temporary accounts, such as revenues and expenses, to permanent accounts, typically reflected in retained earnings. This process is crucial at the end of an accounting period as it ensures that the temporary accounts start with a zero balance in the new period, allowing for a clear distinction between fiscal years. By transferring these balances, the closing entry helps to summarize the financial performance of the business for the period just ended and integrates that performance into the overall equity of the company.

The other choices do not accurately reflect the purpose and nature of a closing entry. Changing expenses does not involve the systematic closing of accounts, customer payment records pertain to cash flow management rather than account balancing, and budget estimates are more about future planning than accounting practices at period-end. Thus, focusing on how temporary account balances are transitioned into permanent accounts defines the essence of a closing entry.