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 critical for the final step of preparing closing entries in the accounting cycle?

Transferring the balances of temporary accounts to retained earnings

Recording adjusting entries for accrued expenses

Reconciling the bank statement

Preparing the post-closing trial balance before closing entries

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Verified step by step guidance

Understand the purpose of closing entries: Closing entries are 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 temporary accounts: Temporary accounts include revenue, expense, and dividend accounts. These accounts are used to track financial activity during a specific period and must be closed to retained earnings to reflect the net income or loss in the permanent equity account.

Explain the critical step: The final step in preparing closing entries involves transferring the balances of temporary accounts to retained earnings. This ensures that the net income or loss is reflected in the equity section of the balance sheet and prepares the accounts for the next period.

Clarify why other options are not correct: Recording adjusting entries for accrued expenses is part of the adjusting entries process, not closing entries. Reconciling the bank statement is a separate procedure for ensuring accuracy in cash accounts. Preparing the post-closing trial balance occurs after closing entries are made to verify that all temporary accounts have been closed and the ledger is balanced.

Summarize the correct answer: The critical step in the final stage of preparing closing entries is transferring the balances of temporary accounts to retained earnings, as this completes the accounting cycle and prepares the accounts for the next period.