Final answer:
Closing entries are generally performed annually, not monthly, as part of the year-end accounting cycle. They are used to zero out temporary accounts and prepare for the new fiscal period. The statement that they are done each month is false, although some businesses may do them more frequently for internal purposes.
Step-by-step explanation:
The statement 'Closing entries are done at the end of each month' is generally false. Typically, closing entries are part of the accounting cycle performed at the end of an accounting period to transfer the balances in temporary accounts to permanent accounts. In traditional practice, this accounting period is often a year, which would mean closing entries are done annually rather than monthly. However, some businesses may choose to perform these more frequently, such as quarterly or monthly, for internal management purposes but it is not the standard practice.
Closing Entries Overview
Closing entries are critical for preparing the company's accounts for the next period. By closing revenue, expense, and withdrawal (dividends) accounts, the company zeroes out the balances in these accounts to start fresh for the new accounting period. This process ensures that the revenues and expenses are reported in the correct period.
It's important to note that while monthly closing entries are not the norm, companies do perform other procedures at month-end, such as reconciling accounts and preparing financial statements, which are part of the monthly financial closing process.