Closing the Books - Closing the Books Alternative...

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Closing the Books Alternative Terminology Temporary accounts are sometimes called nominal accounts , and permanent accounts are sometimes called real accounts . In previous chapters you learned that revenue and expense accounts and the dividends account are subdivisions of retained earnings, which is reported in the stockholders' equity section of the balance sheet. Because revenues, expenses, and dividends relate to only a given accounting period, they are considered temporary accounts . In contrast, all balance sheet accounts are considered permanent accounts because their balances are carried forward into future accounting periods. Illustration 4-29 identifies the accounts in each category. Preparing Closing Entries At the end of the accounting period, companies transfer the temporary account balances to the permanent stockholders' equity account—Retained Earnings—through the preparation of closing entries. Closing entries transfer net income (or net loss) and dividends to Retained Earnings, so
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Closing the Books - Closing the Books Alternative...

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