Closing entries serve two important purposes: (1)to return the balances in all temporary or nominal accounts to zero to start the next accounting period and (2)to transfer the net income (or net loss)and the dividends of the period to the Retained Earnings account.

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Closing entries are made to reset temporary or nominal accounts to zero and transfer the net income or loss to the Retained Earnings account.

Closing Entries Serve Two Important Purposes: (1)to Return the Balances