Final answer:
The main purpose of closing entries is to update the balance of Retained Earnings and reset revenue, expense, and dividend accounts for the upcoming period's transactions. They ensure that financial statements reflect the accurate performance for the period that has just ended, and that the company is ready for the next accounting cycle.
Step-by-step explanation:
The primary purpose of closing entries in accounting is to update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for the next period's transactions. The correct answer to your question is C) Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions. Closing entries are made at the end of an accounting period to transfer the balances in temporary accounts (like revenues, expenses, and dividends) to permanent accounts, like Retained Earnings. This process helps to reset the balance of temporary accounts to zero in preparation for the next accounting period, ensuring that revenues and expenses are matched in the correct period.
T-accounts assist in understanding the relationship between assets and liabilities. They illustrate that the assets of a firm are on the left side of the T, while liabilities and net worth are on the right side. This structure ensures that a firm's assets always equal liabilities plus net worth, whether the firm is healthy or bankrupt. In practice, a T-account is a simplistic representation, as most firms have much more complex financials. However, understanding T-accounts is a fundamental aspect of grasping the basic principles of accounting.