Question

The purpose of making closing entries is to:

a) Prepare revenue and expense accounts for the recording of the next period's revenue and expenses.
b) Enable the accountant to prepare financial statements at the end of the accounting period.
c) Establish new balances in the balance sheet accounts.
d) Reduce the number of expense accounts.

Answer 1

Closing entries are made to prepare revenue and expense accounts for the next period's transactions, by resetting their balances to zero after transferring their balances to the retained earnings account.

Step-by-step explanation:

The purpose of making closing entries is to prepare revenue and expense accounts for the recording of the next period's revenue and expenses. This involves transferring the balances of all temporary accounts (revenues, expenses, dividends/distributions, and income summary) to the retained earnings account, which is a permanent account on the balance sheet. The process effectively resets the balances of the temporary accounts to zero so that they can begin to accumulate the transactions of the new fiscal period without the previous period's data.

It is not specifically about enabling the accountant to prepare financial statements because those statements are prepared before closing entries are made. It also does not establish new balances in the balance sheet accounts nor does it reduce the number of expense accounts; rather, it zeros out the balances of temporary accounts for the new accounting cycle.