Final answer:
Closing the books refers to the process of preparing financial statements and performing year-end closing procedures to ensure accurate financial records.
Step-by-step explanation:
Closing the books refers to the process of preparing financial statements and performing year-end closing procedures. It is a crucial step in the accounting cycle that ensures accurate and complete financial records at the end of an accounting period.
During the closing process, temporary accounts such as revenue and expense accounts are closed or zeroed out by transferring their balances to the retained earnings account. This allows the company to start the next accounting period with updated and relevant financial information.
For example, let's say a company's fiscal year-end is December 31. Closing the books involves recording all the necessary transactions and adjustments for December and then finalizing the financial statements. This includes analyzing the revenue and expense accounts, reconciling balances, and generating reports like the income statement, balance sheet, and statement of cash flows.