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

The primary purpose of closing entries is to:

Transfer the balances of temporary accounts to retained earnings

Prepare the financial statements for the next accounting period

Record external transactions with customers and suppliers

Adjust asset and liability accounts to their correct balances

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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 temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. These accounts are used to track financial activity during a specific period and need to be closed to prepare for the next period.

Determine the purpose of closing entries: The primary purpose is to transfer the balances of temporary accounts to retained earnings, which is a permanent account. This ensures that the financial statements reflect the cumulative financial position of the company.

Recognize what closing entries do not accomplish: Closing entries do not prepare financial statements directly, record external transactions, or adjust asset and liability accounts. These tasks are handled by other processes, such as adjusting entries and transaction recording.

Conclude the correct answer: Based on the explanation, the correct purpose of closing entries is to transfer the balances of temporary accounts to retained earnings, ensuring the company's financial records are ready for the next accounting period.