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Closing Entries quiz #3 Flashcards

Closing Entries quiz #3
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  • How does the closing process affect the company's accounting records?
    The closing process updates the accounting records by transferring temporary account balances to retained earnings and resetting them to zero.
  • What is the main difference between temporary and permanent accounts in the context of closing entries?
    Temporary accounts are closed at period-end, while permanent accounts carry their balances forward to the next period.
  • What is the primary purpose of closing entries in the accounting cycle?
    The primary purpose is to zero out temporary account balances and transfer their amounts to retained earnings, preparing the accounts for the next period.
  • Which accounts are considered temporary and require closing at the end of the period?
    Temporary accounts include all income statement accounts (revenues and expenses) and the dividends account.
  • How are revenue accounts closed during the closing process?
    Revenue accounts are closed by debiting each revenue account for its balance and crediting the income summary account.
  • What is the function of the income summary account during the closing process?
    The income summary account temporarily accumulates the net effect of revenues and expenses before transferring the net income or loss to retained earnings.
  • How are expense accounts closed at the end of the accounting period?
    Expense accounts are closed by crediting each expense account for its balance and debiting the income summary account.
  • What is the process for closing the dividends account?
    The dividends account is closed by debiting retained earnings and crediting the dividends account to bring its balance to zero.
  • How is the income summary account closed, and what does this entry represent?
    The income summary account is closed by debiting it for its balance and crediting retained earnings, representing the transfer of net income or loss to retained earnings.
  • What is the main difference between temporary and permanent accounts in the context of closing entries?
    Temporary accounts are closed at period-end and reset to zero, while permanent accounts carry their balances forward to the next period and are not closed.