Which of the following statements about the closing process is true?

• A. The closing process eliminates the need for adjusting entries.
• B. The closing process is used to update the balances of permanent accounts to zero.
• C. The closing process transfers the balances of temporary accounts to retained earnings.
• D. Closing entries are made at the beginning of each accounting period.

Answer: (C)

Verified step by step guidance

1. Understand the purpose of the closing process: The closing process is performed at the end of an accounting period to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to permanent accounts (specifically retained earnings). Temporary accounts are reset to zero for the next accounting period.
2. Identify temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts. These accounts are closed to ensure they do not carry over into the next accounting period.
3. Recognize permanent accounts: Permanent accounts, such as assets, liabilities, and equity accounts, are not closed during the closing process. Their balances are carried forward to the next accounting period.
4. Clarify the timing of closing entries: Closing entries are made at the end of the accounting period, not at the beginning. This ensures that the financial statements accurately reflect the results of the period just ended.
5. Confirm the correct statement: The closing process transfers the balances of temporary accounts to retained earnings. This is the correct statement because it aligns with the purpose of the closing process in financial accounting.