Question

The first step in the closing process is to reduce the balances in the temporary accounts to zero. The second step is to transfer the effects of step 1 to which account?

a)dividends
b)retained earnings
c)common stock
d)cash

Answer 1

The second step in the closing process is to transfer the effects of reducing the balances in the temporary accounts to the retained earnings account.

Step-by-step explanation:

The second step in the closing process is to transfer the effects of reducing the balances in the temporary accounts to the retained earnings account.

This step ensures that all the temporary accounts, such as revenue, expenses, and gains or losses, are closed out and their balances are transferred to the retained earnings account.

This is done to start the new accounting period with zero balances in the temporary accounts and to update the balance in the retained earnings account.