Question

The closing entry has two purposes. One is to establish a zero balance in each of the temporary accounts to start the accumulation in the next accounting period. What is the other purpose?

a. Transfer the balances in the temporary accounts (income statement accounts) to their related assets and liability accounts

b. Transfer the balances in the temporary accounts (income statement accounts) to Retained Earnings

c. Transfer the balances in the permanent accounts (balance sheet accounts) to their related revenue and expense accounts

d. Transfer the balances in the permanent accounts (balance sheet accounts) to Retained Earnings

Answer 1

Solution

Q. The closing entry has two purposes. One is to establish a zero balance in each of the temporary accounts to start the accumulation in the next accounting period. What is the other purpose?

Answer : a. Transfer the balances in the temporary accounts (income statement accounts) to their related assets and liability accounts.

Why?

A closing entry is a journal entry that is made at the end of an accounting period to transfer balances from a temporary account to a permanent account.

Temporary accounts are accounts in the general ledger that are used to accumulate transactions over a single accounting period. The balances of these accounts are eventually used to construct the income statement at the end of the fiscal year.

Permanent accounts are accounts that show the long-standing financial position of a company. Balance sheet accounts are permanent accounts.

answered by: anonymous