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 is an objective for preparing closing entries?

To reconcile the bank statement with the cash account

To adjust asset and liability accounts to their fair values

To transfer the balances of temporary accounts to retained earnings

To record the purchase of long-term assets

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Verified step by step guidance

Understand the purpose of closing entries: Closing entries are prepared 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 ensures that temporary accounts start with a zero balance in 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 retained earnings.

Recognize the permanent account: Retained earnings is a permanent account that accumulates the net income or loss and dividends over time. Closing entries transfer the net effect of temporary accounts to retained earnings.

Prepare closing entries: For each temporary account, create a journal entry to transfer its balance to retained earnings. For example, debit revenue accounts and credit retained earnings, and credit expense accounts and debit retained earnings.

Verify the objective: The objective of preparing closing entries is to transfer the balances of temporary accounts to retained earnings, ensuring the accounting records are ready for the next period.