Question

When the accountant makes entries to bring the revenue and expense accounts and the withdrawal account to a zero balance while updating the capital account, she is executing the:

a. Closing entries
b. Adjusting entries
c. Reversing entries
d. Journalizing entries

Answer 1

Closing entries are made by an accountant to reset the balances of revenue, expense, and withdrawal accounts to zero and update the capital account at the end of an accounting period.

Step-by-step explanation:

When an accountant makes entries to reset the balances of revenue, expense, and owner's withdrawal accounts, and updates the capital account, she is performing closing entries. The purpose of closing entries is to transfer the balances from these temporary accounts — which include revenues, expenses, and withdrawals — to permanent accounts, specifically to update the capital account. This is done at the end of an accounting period to prepare the accounts for the next period.

Adjusting entries are different; they are made to record accrued incomes and expenses that have not yet been recorded by the end of the accounting period. Reversing entries are optional and are made at the beginning of the new accounting period; they are the exact opposite of some adjusting entries made in the previous period. Lastly, journalizing entries refer to the process of recording transactions in the journal as they occur.