Question - Closing entries are needed to transfer balances in temporary accounts to Retained Earnings, which is a permanent balance sheet stockholders' equity account. Revenue, expenses, and dividends accounts are temporary accounts that must be closed. Once these accounts are closed, the ending balance in their accounts on the general ledger will be zero.
Let's suppose we have the following four accounts to close. This is a simplification because we would likely have many more expenses. How do we close these accounts?
1. Revenue $12,000
2. Cost of Goods Sold $6,000
3. Rent Expense $3,600
4. Dividends $1,000