alleryWhen are closing entries prepared in the accounting cycle?
ABefore any transactions are journalized
BDaily, as each transaction occurs
COnly when the business is dissolved
DAfter the financial statements are prepared
Answer & Solution
Correct answer: D. After the financial statements are prepared
1. Closing entries set income statement account balances back to zero for a fresh start.
2. They are made at period end, after the financial statements are prepared but before the next period's first transaction.
3. They are not done before transactions (A) or daily (B), which describe journalizing and posting.
4. They occur every period end, not only at dissolution, ruling out D.
5. Therefore closing entries follow the financial statements.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.4.4 "Closing Entries", p.24_
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