The purpose of closing entries is to reduce the balance in the periodic accounts to zero and to compute net income for the period.

Question

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The purpose of closing entries is indeed to transfer the balances of the periodic accounts (revenue, expenses, and dividends) to the retained earnings account, which results in a zero balance for these accounts at the beginning of the next period. These entries also allow the calculation of net income (or net loss) for the period by subtracting total expenses from total revenues.

The Purpose of Closing Entries Is to Reduce the Balance