question archive Anne Marie, the owner of Anne’s Beauty Salon, comes to see you again

Anne Marie, the owner of Anne’s Beauty Salon, comes to see you again

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Anne Marie, the owner of Anne’s Beauty Salon, comes to see you again. She tells you that she has one more question for you.  
She told you that her accountant tried to explain to her the closing process in the accounting cycle. The more he talked, the more confusing it got. How would you explain the closing process to Anne Marie?

She also asked about dividends. What are they? Will they increase expense?

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Answer:

Closing Entries are journal entries made at the end of the accounting period to set the balances in the temporary account to 0 to start the next Accounting Period.These Temporary account balances are transferred to the Company's balance Sheet.

The Temporary Account that are closed are Revenue Account , Expense Account ,Drawings A/c .These all Accounts are closed to Income Summary Account .These Income summary account are used only at the time of preparing closing entries .Income Summary statement is then closed to Retained Earnings A/c

The Dividend Account is then finally closed to Retained Earnings Account therby bringing an end to Closing entries.

Dividends are distribution of a share of the Company's earnings to its shareholders.Dividends are typically paid out of profits of the company and therefore they do not increase any expense for the company.