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 statements about the closing process is true?

The closing process eliminates the need for adjusting entries.

The closing process is used to update the balances of permanent accounts to zero.

The closing process transfers the balances of temporary accounts to retained earnings.

Closing entries are made at the beginning of each accounting period.

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Verified step by step guidance

Understand the purpose of the closing process: The closing process is performed at the end of an accounting period to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to permanent accounts (specifically retained earnings). Temporary accounts are reset to zero for the next accounting period.

Identify temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. These accounts are closed to ensure they do not carry over into the next accounting period.

Recognize permanent accounts: Permanent accounts, such as assets, liabilities, and equity accounts, are not closed during the closing process. Their balances are carried forward to the next accounting period.

Clarify the timing of closing entries: Closing entries are made at the end of the accounting period, not at the beginning. This ensures that the financial statements accurately reflect the results of the period just ended.

Confirm the correct statement: The closing process transfers the balances of temporary accounts to retained earnings. This is the correct statement because it aligns with the purpose of the closing process in financial accounting.