Closing Entries definitions Flashcards
Closing Entries definitions
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Closing Entries Journal entries made at period end to reset temporary account balances to zero, preparing accounts for the next fiscal year. Temporary Accounts Accounts that accumulate balances for a single period, including revenues, expenses, and dividends, and are reset annually. Permanent Accounts Accounts whose balances carry over from year to year, such as assets, liabilities, and equity, and are not closed at period end. Income Summary A temporary account used only during the closing process to collect revenues and expenses before transferring net income or loss. Adjusted Trial Balance A list of all account balances after adjusting entries, serving as the basis for preparing financial statements and closing entries. Revenue Accounts Accounts that record income earned during a period, typically holding credit balances and closed to income summary at year-end. Expense Accounts Accounts that track costs incurred during a period, usually with debit balances, and are closed to income summary at period end. Dividends Distributions of earnings to shareholders, classified as a temporary account and closed directly to retained earnings. Retained Earnings Equity account reflecting accumulated net income minus dividends, increased by closing net income and decreased by dividends. Balance Sheet Accounts Accounts reported on the balance sheet, including assets, liabilities, and equity, which retain balances across periods. Credit Balance A positive amount on the right side of an account, typical for revenues, liabilities, and equity, and used in closing entries. Debit Balance A positive amount on the left side of an account, common for expenses, assets, and dividends, and adjusted during closing. Net Income The excess of revenues over expenses for a period, transferred to retained earnings through the closing process. Fiscal Year An accounting period of twelve months for which financial statements are prepared and closing entries are made. Equity Accounts Accounts representing owners' claims on assets, including retained earnings, which are affected by closing entries.
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