U2 L17 Closing Entries - Closing Entries The final stage of...

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Closing Entries The final stage of the accounting cycle is to prepare the accounts for the next fiscal period. Some accounts in the ledger have balances that continue into the next fiscal period, while other accounts in the ledger must start each fiscal period with a zero balance. In order to begin recording revenue and expenses, and thus net income, for a new fiscal period, you need to bring the balances of these accounts to zero. In order to measure drawings for a new fiscal period, you need to also bring the balance of this account to zero. The process of bringing these account balances to zero is known as closing the accounts . Assets, liabilities , and capital are classified as real or permanent accounts , since they have balances that will continue into the next fiscal period . Revenues, expenses , and drawings are classified as nominal or temporary accounts , since they have balances that do not continue into the next fiscal period . Since revenues and expenses produce net income , and net income is always measured, on an income statement , for one period, it is important that these accounts start each new period with zero balances. Also, since net income and drawings affect the change in equity over one period, it is important that the revenues and expenses , as well as drawings , start each new period with a zero balance. Closing the nominal accounts involves a four-step process. A new type of nominal
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U2 L17 Closing Entries - Closing Entries The final stage of...

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