Closing entries are required:
A) If the temporary accounts are to reflect correct amounts for each accounting period.
B) Only if the company adheres to the accrual method of accounting.
C) If a company's bookkeeper does not choose to prepare reversing entries.
D) If management has decided to cease operating the business.
E) In order to satisfy the Internal Revenue Service guidelines.

Question

Quizplus · Accepted Answer

Closing entries are necessary to transfer the balances of temporary accounts (revenue, expenses) to a permanent account (retained earnings) so that the temporary accounts reflect accurate amounts for each accounting period. This process helps businesses prepare accurate financial statements for decision-making purposes.

Closing Entries Are Required