Question

What is the closing process, and why is it necessary prior to preparing financial statements? Include temporary and permanent accounts in your discussion. Consider using an example of a real company to discuss why the closing process is a necessary step in the accounting cycle. Participate in follow-up discussion by comparing the accounts

Answer 1

  At the end of each accounting period the books of accounts need to be closed for preparation of final accounts.Also in the beginning

of the new accounting period,new books of accounts are to be opened. For this purpose, opening and closing entries need to be passed .

Closing entries—-All the expenses and gains or

income related nominal accounts must be closed at the end of the year. In order to close them, they are transferred to either Trading Account or profit and loss Account

The closing entries are passsed on the basis of trial balance