Which of the following is true regarding closing entries?
AThey must be made after the reversing entries but before the adjusting entries
BThey must be followed by reversing entries
CThey must be made after the adjusting entries but before the reversing entries
DThey transfer the balances in all of the Nominal Accounts to the Trading and Profit and Loss Account
Correct answer
C. They must be made after the adjusting entries but before the reversing entries
Explanation
Closing entries are required to transfer the nominal accounts to the Profit & Loss Account and the Trading account. Real accounts and personal account are not closed to Profit & Loss Account or Trading Account. Their balance is carried in the Balance Sheet and appears as opening Balance in the next accounting period.