Closing Entries

Closing Entries Closing Entries Companies close their ledger accounts to begin a new ledger the following year. The businesses need to begin from zero to get significant information (Warren, Reeve & Duchac, 2012). When businesses account for expenses and income, they have a specific time, for instance year-to-date. They present information which occurred during that time only and not any prior data. Closing entries are also needed at the end of an accounting period because the books of the business have to balance. If the books do not balance, then the business will know that something is wrong with their proceedings. Finally, closing entries are also needed at the end of an accounting period in order to save accounting data in case any error occurs during closing. If any error is detected, then it will be easier for the business to rectify the error (Warren, Reeve & Duchac, 2012).

Adjusting entries refer to journal entries made at the close of an accounting period to account for expenditure and income of the time in which they essentially occurred (Warren, Reeve & Duchac, 2012). The income recognition code is the root of making adjusting entries, which pertain to accrued and unearned spending under accrual-basis accounting. Adjusting entries are at times referred to as Balance Day adjustments as they are prepared on balance day. Closing entries, on the other hand, are journal entries prepared at the close of an accounting period to move short-term accounts to lasting accounts (Warren, Reeve & Duchac, 2012). An income review account can be used to demonstrate the balance between expenses and revenue, or they could be closed against retained incomes where dividend expenses will be subtracted from.

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Reference

Warren, C. S., Reeve, J. M., & Duchac, J. E. (2012). Financial accounting (12th ed.). Mason, OH: South-Western Cengage Learning.

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