Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Closing Entries

Financial Accounting

3. Accrual Accounting Concepts

Closing Entries

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Multiple Choice

Which of the following best explains why temporary accounts must start each fiscal period with a zero balance?

To ensure that revenues and expenses are reported only for the current period.

To comply with the matching principle for permanent accounts.

To avoid double-counting assets and liabilities.

To carry forward the balances to the next period for comparison.

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Verified step by step guidance

Understand the concept of temporary accounts: Temporary accounts include revenue, expense, and dividend accounts. These accounts are used to track financial activity for a specific fiscal period and are closed at the end of that period.

Recognize the purpose of closing temporary accounts: Closing these accounts ensures that their balances do not carry over to the next fiscal period, allowing the company to report revenues and expenses solely for the current period.

Relate this to the matching principle: The matching principle in accounting states that expenses should be matched with revenues in the period they are incurred. Temporary accounts are reset to zero to comply with this principle and ensure accurate reporting.

Avoid confusion with permanent accounts: Permanent accounts, such as assets, liabilities, and equity, are not closed and their balances are carried forward to the next period. Temporary accounts are treated differently to prevent double-counting and ensure clarity in financial reporting.

Conclude why zeroing out temporary accounts is essential: Starting each fiscal period with a zero balance in temporary accounts ensures that financial statements reflect only the activity of the current period, avoiding errors and maintaining compliance with accounting principles.