Closing entries are required:
A)If management has decided to cease operating the business.
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 the temporary accounts are to reflect correct amounts for each accounting period.
E)In order to satisfy the Internal Revenue Service guidelines.

Question

Quizplus · Accepted Answer

Closing entries are required to transfer the balances of temporary accounts (revenues, expenses, and dividends) to the permanent equity accounts at the end of each accounting period. This is necessary to ensure that the temporary accounts reflect correct amounts for each accounting period. Therefore, Option D is correct. Option A is incorrect because closing entries are not required only if management has decided to cease operating the business. Option B is incorrect because closing entries are required regardless of the accounting method used. Option C is incorrect because closing entries are unrelated to reversing entries. Option E is incorrect because closing entries are required for accurate financial reporting, not just for IRS requirements.

Closing Entries Are Required