Question

Why are closing entries important to the closing process?

Answer 1

Solution

Closing entries important to the closing process

In closing entries, we have to prepare the temporary accounts such as the revenue and expense accounts. The closing entries are recorded after the financial statements for the accounting year are prepared. The reason for the closing entries is to ensure that each revenue and expense account will begin the next accounting year with a zero balance

We prepare closing entries for the temporary accounts such as the revenue and expense accounts (see earlier Q&A). The closing entries are recorded after the financial statements for the accounting year are prepared. The reason for the closing entries is to ensure that each revenue and expense account will begin the next accounting year with a zero balance.

The closing entries require that a debit be entered into each of the temporary accounts having a credit balance The debit entered must be exactly the amount of the credit balance prior to the closing entry. The objective is to get the account balance to be zero.