Which of the following statements best describes the purpose of closing entries?
A) To faciliate posting and taking a trial balance.
B) To determine the amount of net income or net loss for the following period.
C) To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.
D) To complete the record of various transactions that were started in a prior period.

Question

Quizplus · Accepted Answer

The purpose of closing entries is to reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period. This allows for a fresh start each period and ensures that the financial statements only include current period activity. Closing entries do not determine net income or net loss for the following period, facilitate posting and taking a trial balance, or complete the record of various transactions from a prior period.

Which of the Following Statements Best Describes the Purpose of Closing