Question

A major purpose of closing entries is to:

Select one:

a. zero out the Retained Earnings account

b. adjust the asset accounts to their current balances

c. transfer the net income and dividends of the period to Retained Earnings

d. close out the accounts payable account

e. none of the above

Answer 1

Answer:

c. transfer the net income and dividends of the period to Retained Earnings.

Explanation:

Closing entries are used to transfer revenue and expenses from temporary accounts to retained earnings at the end of an accounting period to determine the income earned by the business in the given period.

Net income is revenue less expenses, so it can be said that closing entries is transfer of net income from temporary accounts to retained earnings.

Example of closing entry is moving balance in interest expense to retained earnings at the end of the year.

Answer 2

Answer:

The correct answer is letter "C": transfer the net income and dividends of the period to Retained Earnings.

Explanation:

A closing entry is a journal entry at the end of an accounting period. This closes all temporary accounts and transfers the records to a permanent balance sheet or an account with an income statement. The following procedure must be followed for making closing entries:

1) Close revenue accounts to income summary.

2) Close expense accounts to income summary.

3) Close income summary to retained earnings.

4) Close dividends to retained earnings.