The final step when preparing closing entries is to close the Dividends account to the Retained Earnings account.

Question

Quizplus · Accepted Answer

This statement is true. The Dividends account is a temporary account used to track the distribution of profits to shareholders. At the end of the accounting period, the balance in the Dividends account is closed (transferred) to the Retained Earnings account, which is a permanent account. This process helps to accurately reflect the net income of the business on the balance sheet.

The Final Step When Preparing Closing Entries Is to Close