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 purpose of closing entries is to transfer:

assets and liabilities to the capital account

the balances of temporary accounts to retained earnings

cash balances to the revenue account

the balances of permanent accounts to the income summary account

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Verified step by step guidance

Understand the purpose of closing entries: Closing entries are used in accounting to reset the balances of temporary accounts (such as revenues, expenses, and dividends) to zero at the end of an accounting period. This ensures that these accounts start fresh for the next period.

Identify the temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. These accounts are closed to prevent their balances from carrying over to the next accounting period.

Determine where the balances are transferred: The balances of temporary accounts are transferred to a permanent account, typically the Retained Earnings account, which is part of the equity section of the balance sheet.

Understand the process of closing entries: The process involves four steps: (1) Close revenue accounts to the Income Summary account, (2) Close expense accounts to the Income Summary account, (3) Close the Income Summary account to Retained Earnings, and (4) Close the Dividends account (if applicable) to Retained Earnings.

Recognize 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 that the financial statements reflect accurate and updated information for the next accounting period.