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SSC Financial and Cost Accounting P-1 QUESTION #1193
Question 1
Which of the following statements about the accounting cycle is TRUE?
  • The cycle begins with financial statement preparation.
  • Adjusting entries are optional.
  • Closing entries transfer balances from temporary accounts to retained earnings.✔️
  • The post-closing trial balance includes temporary accounts.
Correct Answer Explanation
Closing entries are made at the end of an accounting period to transfer balances of temporary accounts (revenues, expenses, drawings) to retained earnings (or owner's capital). The post-closing trial balance includes only permanent accounts (assets, liabilities, equity). Adjusting entries are mandatory, not optional.