Which of the following statements about closing entries is correct?
A) The profit or loss summary account is used regularly when processing transactions for sales and expenses.
B) Computerised accounting systems have eliminated the need to close off the income and expense accounts.
C) Closing entries are made at the end of each accounting period whatever its length.
D) Closing entries are only made at the end of the accounting year.

Question

Quizplus · Accepted Answer

Closing entries are only made at the end of the accounting year to transfer balances in temporary accounts such as revenue, expenses, and dividends to the permanent equity accounts. This process resets the temporary accounts to zero and prepares them for the next accounting year. While it is possible to make closing entries at the end of each accounting period, it is not necessary unless the company requires up-to-date financial statements for its management or stakeholders. Option A is incorrect because the profit or loss summary account is used only during the closing process to calculate the net income or loss for the period. Option B is incorrect because even though computerised accounting systems simplify the closing process, they still require closing entries to be made. Option C is problematic because an accounting period may not necessarily end on a regular basis depending on the company's fiscal year or accounting policies.

Which of the Following Statements About Closing Entries Is Correct