Multiple Choice
Which of the following accurately describes the purpose of closing entries in the accounting cycle?
140
views
3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following is the last step in the business operating cycle?
A
Posting transactions to the ledger
B
Preparing the trial balance
C
Recording adjusting entries
D
Preparing closing entries to transfer balances to retained earnings
Verified step by step guidance1
Understand the business operating cycle: The business operating cycle refers to the sequence of activities a company undertakes to record, summarize, and report financial transactions during an accounting period.
Review the steps in the accounting process: These typically include identifying transactions, recording journal entries, posting to the ledger, preparing the trial balance, recording adjusting entries, and preparing financial statements.
Recognize the purpose of closing entries: Closing entries are made at the end of the accounting period to transfer temporary account balances (e.g., revenues, expenses, and dividends) to permanent accounts like retained earnings.
Identify the role of closing entries in the cycle: Closing entries ensure that temporary accounts are reset to zero for the next accounting period, allowing the company to start fresh with its financial records.
Conclude that preparing closing entries is the final step: After all other steps in the accounting process are completed, closing entries are prepared to finalize the accounting cycle and transfer balances to retained earnings.
Related Videos
Related Practice
