Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 26 - No. 34)
Which of the following best describes the purpose of closing entries?
To transfer the balances of temporary accounts to permanent accounts.
To prepare the general ledger.
To bring temporary account balances to zero.
To adjust the cash balance to match the cash in the bank.
Explanation
Closing entries transfer the balances of temporary accounts (revenue and expense accounts) to the retained earnings account (a permanent account), resetting the temporary account balances to zero at the end of an accounting period.
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