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

What is the primary purpose of closing entries in the accounting cycle?

To transfer the balances of temporary accounts to retained earnings

To record the purchase of new assets

To prepare the financial statements for the next accounting period

To adjust asset and liability accounts to their fair market value

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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 (like retained earnings). This process resets the temporary accounts to zero for the next accounting period.

Identify the purpose of closing entries: The primary purpose is to ensure that the temporary accounts do not carry over their balances into the next accounting period, allowing the company to start fresh with these accounts.

Analyze the options provided: Evaluate each option to determine which aligns with the purpose of closing entries. For example, transferring balances to retained earnings is directly related to closing entries, while recording asset purchases or adjusting accounts to fair market value are unrelated tasks.

Relate closing entries to the accounting cycle: Closing entries are part of the final steps in the accounting cycle, which includes preparing financial statements and resetting temporary accounts for the next period.

Conclude the correct answer: Based on the explanation, the correct answer is 'To transfer the balances of temporary accounts to retained earnings,' as this is the primary purpose of closing entries in the accounting cycle.