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 forgets 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.

Question

Quizplus · Accepted Answer

Closing entries are necessary to transfer the balances of temporary accounts such as revenues, expenses, and dividends into the permanent accounts. This process ensures that the income statement reflects the correct figures for the accounting period and prepares the temporary accounts for the next period. This process is essential, regardless of the accounting method used, and is not related to any external requirements.

Closing Entries Are Required