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

When are closing entries journalized and posted in the accounting cycle?

Whenever a transaction occurs during the period

At the beginning of the accounting period, before any transactions are recorded

Only when errors are discovered in the trial balance

At the end of the accounting period, after the financial statements are prepared

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Verified step by step guidance

Understand the purpose of closing entries: Closing entries are used to transfer the balances of temporary accounts (e.g., revenues, expenses, and dividends) to permanent accounts (e.g., retained earnings) to reset the temporary accounts for the next accounting period.

Recognize the timing of closing entries: Closing entries are journalized and posted at the end of the accounting period, after the financial statements are prepared. This ensures that the financial statements reflect the correct balances before resetting temporary accounts.

Identify the accounts involved: Temporary accounts such as revenue, expense, and dividend accounts are closed to the retained earnings account. This process ensures that the net income or loss and dividends are reflected in the equity section of the balance sheet.

Journalize the closing entries: Create journal entries to close each temporary account. For example, debit revenue accounts and credit the income summary account, then debit the income summary account and credit expense accounts. Finally, transfer the balance of the income summary account to retained earnings.

Post the closing entries to the ledger: After journalizing the closing entries, post them to the general ledger to update the account balances. This completes the closing process and prepares the accounts for the next accounting period.