Closing entries are made
A) in order to terminate the business as an operating entity.
B) so that all assets, liabilities, and stockholders' equity accounts will have zero balances when the next accounting period starts.
C) in order to transfer net income (or loss) and dividends to the retained earnings account.
D) so that financial statements can be prepared.

Question

Quizplus · Accepted Answer

Closing entries are made in order to transfer the net income (or loss) and dividends to the retained earnings account. This is done in order to update the retained earnings balance and prepare the company's financial statements. Option A and B are incorrect as closing entries do not terminate the business or create zero balances in the accounts. Option D is partially correct as financial statements are prepared after the closing entries are made, but it is not the primary reason for making closing entries.

Closing Entries Are Made