Which of the following describes the purpose(s)of closing entries?
A)Adjust the balances of asset and liability accounts for unrecorded activity during the period.
B)Transfer the balances of temporary accounts to common stock.
C)Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.

Question

Quizplus · Accepted Answer

The purpose of closing entries is to reduce the balances of the temporary accounts (revenue, expense, and dividend accounts) to zero to prepare them for measuring activity in the next period. This is done by transferring these balances to the retained earnings account or to the income summary account, and ultimately to retained earnings. Option A describes adjusting entries, while Option B is not correct as temporary account balances are not transferred to common stock.

Which of the Following Describes the Purpose(s)of Closing Entries