Question

Why does a company need to close its accounting books? Select one: a. Training in the system is finished. b. Storage space is limited. c. Companies need to zero out certain accounts to start anew for the next period. d. Certain financial statements take too much time.

Answer 1

Answer:

Correct option is (c)

Explanation:

Organizations empty all temporary accounts at the end of the year and transfer the balance to retained earnings. Permanent accounts on the contrary, are not closed at the end of the year. They are carried forward to the next year.

As such, companies need to close accounting books at the end of the year as these temporary accounts are closed. Some temporary accounts are revenue and expenses.