Question

Answer each question with 100+ words

1. How would you define closing entries?

2. Why are most closing entries completed at the end of the year?

3.Would you rather complete closing entries at year end or month end close? Explain.

4. Describe the nature of the Income Summary account, and identify the types of summary data that may be posted to this account.

5. Why do you think it is important to summarize account information before posting to the Retained Earnings account?

6 What is the general ledger?

7. What order are the accounts arranged in the general ledger? Why?

8. Why is an audit trail necessary?

Answer 1

Since, multiple questions have been posted, I have answered the first one.

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Question1)

The journal entries required to transfer balances in temporary accounts (income statement accounts) to permanent accounts (balance sheet accounts) are known as closing entries. Once the closing entries have been passed, the balances in temporary accounts become zero. Such, journal entries are passed at the end of the relevant accounting period (which may be monthly or annually). The closing entries involve closure of revenues and gains accounts, expenses and losses accounts, income summary and dividend accounts. The balances in revenues and gains, expenses and losses are first transferred to income summary account. The balance in the income summary account is thereafter, transferred to retained earnings account. The retained earnings account is also adjusted with respect to any dividends paid by the company as a part of closing entries. The journal entries required at the end of relevant period are provided as below:

Account Titles	Debit	Credit
Revenues and Gains	XXX
Income Summary		XXX
(To close revenues and gains accounts to income summary account)
Income Summary	XXX
Expenses and Losses		XXX
(To close expenses and losses accounts to income summary account)
Income Summary (the entry would be reversed if there is net loss)	XXX
Retained Earnings		XXX
(To transfer balance of income summary to retained earnings)
Retained Earnings	XXX
Dividends		XXX
(To adjust dividends against retained earnings)