From the course: Advanced Bookkeeping Techniques
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Updating retained earnings and resetting nominal accounts
From the course: Advanced Bookkeeping Techniques
Updating retained earnings and resetting nominal accounts
- The closing entries zero out the balances in all revenue, expense, and dividend accounts and then transfer the balances to retained earnings, their permanent home. To illustrate, here are all of the account balances in the books of Open Company as of December 31st. Notice that the retained earnings balance is stated as of the beginning of the year. The retained earnings balance is left untouched until the end of the year. All of the action in retained earnings during the year is shown in the detailed retained earnings subcategories, the revenues, expenses, and dividends. In the closing process, at the end of the year, the amounts in these subcategories are gathered up and transferred to their permanent home in retained earnings. So first, let's determine which accounts are not involved in the closing process. The accounts that are closed are just the nominal accounts. The real accounts are not closed. The real accounts…
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