The Purpose of Closing Entries Is to

question 40

Multiple Choice

The purpose of closing entries is to

• A)update a periodic inventory account for credit sales
• B)update the retained earnings account on a daily basis
• C)apportion prepaid expenses and unearned revenues to bring the accounts up to date
• D)reduce all temporary accounts to zero

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Definitions:

Ordinary Income

Income earned from normal business operations or employment, subject to regular income tax rates, excluding capital gains or dividends.

Service Partner

A business entity or individual that provides services to another company under a partnership or contractual agreement.

FMV

Fair Market Value, the estimated price at which an asset would change hands between a willing buyer and seller, both having reasonable knowledge and not under compulsion.

Basis

The initial value or purchase price of an asset for tax purposes, used to calculate the gain or loss on the sale of that asset.