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

The purpose of closing entries is to transfer:

the balances of temporary accounts to retained earnings

assets and liabilities to the capital account

cash balances to the revenue account

the balances of permanent accounts to the income summary account

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Verified step by step guidance

Understand the concept of closing entries: Closing entries are journal entries made at the end of an accounting period to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to permanent accounts (such as retained earnings). This process resets the temporary accounts to zero for the next accounting period.

Identify temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. These accounts are used to track financial activity during a specific period and need to be closed to prepare for the next period.

Determine the permanent account: The permanent account that temporary accounts are closed into is typically retained earnings, which is part of the equity section of the balance sheet. Retained earnings represent the accumulated net income of the company after dividends have been paid.

Understand the mechanics of closing entries: Closing entries involve debiting or crediting the temporary accounts to bring their balances to zero. The corresponding credit or debit is made to the retained earnings account. For example, revenue accounts are debited, and retained earnings are credited; expense accounts are credited, and retained earnings are debited.

Clarify the incorrect options: Assets and liabilities are permanent accounts and are not closed; cash balances are not transferred to revenue accounts; permanent accounts are not closed to the income summary account. The correct purpose of closing entries is to transfer the balances of temporary accounts to retained earnings.