Question

Closing entries are made a. in order to transfer net income (or loss) and owner’s drawings to the owner’s capital account. b. so that financial statements can be prepared. c. so that all assets, liabilities, and owner’s capital accounts will have zero balances when the next accounting period starts. d. in order to terminate the business as an operating entity.

Answer 1

Answer:

The correct answer is letter "A": in order to transfer net income (or loss) and owner’s drawings to the owner’s capital account.

Explanation:

A Closing Entry is a journal entry after an accounting period has finished. It closes all the temporary accounts and transfers the details to either a permanent balance sheet or an account of an income statement. Temporary accounts include revenues, expenses, and dividends and must be closed at the end of the accounting year.

The main objective of closing entries is to transfer the Net Income, whether positive or negative and the owner's withdrawals to the owner's equity account.