Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 3 - The Accounting Information System - Review and Practice - Questions - Page 127: 12

Answer

After preparation of adjusting entries and financial statements have been prepared, closing entries are created to transfer nominal account balances to retained earnings (capital).

Work Step by Step

Closing entries are important because they reduce nominal account balances to 0, therefore preparing for the transactions of the next period.
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