Final answer:
The closing process in accounting involves recording external events, transferring balances of temporary accounts, recording unrecorded activities, and storing source documents.
Step-by-step explanation:
The closing process in accounting refers to the final steps taken at the end of an accounting period to prepare financial statements. It involves recording external events for the period so that financial statements can be prepared. For example, if a company earned $10,000 in revenue during the period, this amount will be recorded in the income statement. The balances of temporary accounts such as revenues, expenses, and dividends are transferred to the retained earnings account.
Furthermore, activities that have occurred but have not been recorded by the end of the accounting period are recorded during the closing process. This ensures that all financial transactions are recorded and accounted for accurately. Lastly, storing all source documents used to record transactions throughout the period is an important part of the closing process. These documents serve as evidence for the recorded transactions and can be referred to during audits or any future investigations.