Question

The formal process by which the enterprise reduces all nominal accounts to zero and determines and transfers the net income or net loss to an owners' equity account. Also known as "closing the ledger," "closing the books," or merely "closing."

Answer 1

Closing the books is when all nominal accounts are zeroed out and net income or loss is transferred to equity, aligning the balance sheet.

Step-by-step explanation:

The formal process by which an enterprise reduces all nominal accounts to zero and transfers the net income or loss to an owner's equity account is known as closing the books or ledger closing. This process entails the zeroing out of all revenue, expense, dividend, and summary accounts by transferring their balances to permanent accounts on the balance sheet, such as retained earnings for a corporation or owner's equity for a sole proprietorship. This ensures that the balance sheet accurately reflects the company's financial position at the end of the accounting period, with the assets equalling the sum of liabilities and equity, which aligns with the principles illustrated by T-accounts.