Multiple Choice
Closing entries move the balances from the ______ accounts into the retained earnings account.
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
The closing process is necessary in order to:
A
Record adjusting entries for accrued expenses
B
Prepare the balance sheet for the next accounting period
C
Transfer the balances of temporary accounts to retained earnings
D
Calculate depreciation expense for the period
Verified step by step guidance1
Understand the purpose of the closing process: The closing process is performed at the end of an accounting period to reset temporary accounts (such as revenues, expenses, and dividends) to zero and transfer their balances to permanent accounts, specifically retained earnings.
Identify temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. These accounts are used to track activity during a specific accounting period and must be closed to start fresh for the next period.
Prepare closing entries: Closing entries are journal entries made to transfer the balances of temporary accounts to retained earnings. For example, revenue accounts are debited, and retained earnings are credited; expense accounts are credited, and retained earnings are debited.
Verify the impact on retained earnings: The net effect of closing entries (revenues minus expenses and dividends) will adjust the retained earnings balance, reflecting the company's performance for the period.
Ensure the balance sheet is ready for the next period: After the closing process, only permanent accounts (assets, liabilities, and equity) remain on the balance sheet, making it ready for the next accounting period.
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