Final Answer:
Closing entries for the year ended December 31 involve transferring the balances of temporary accounts—revenue, expense, and dividend accounts—to the permanent capital account. Debit each revenue account, credit each expense account, and credit the dividend account. Simultaneously, credit the income summary account with the total of revenues and debit it with the total of expenses. The final step is to transfer the net income or loss to the retained earnings account.
Step-by-step explanation:
Closing entries are crucial in the accounting cycle as they reset temporary accounts for the upcoming period. By debiting revenues and crediting expenses, these entries reflect the net income or loss for the period. Transferring this balance to the retained earnings account ensures an accurate representation of the company's cumulative financial performance. Closing entries streamline financial reporting by separating current-period results from prior periods and maintaining the integrity of permanent accounts. Therefore, for the year ended December 31, these entries play a pivotal role in the accurate portrayal of a company's financial position.