What are closing entries and what is the purpose of a post-closing trial balance?

• A. Closing entries reset temporary accounts to zero and transfer their balances to permanent equity; the post-closing trial balance ensures only permanent accounts remain with balances.
• B. Closing entries increase permanent accounts only.
• C. Post-closing trial balance lists all accounts with ending balances.
• D. Closing entries eliminate all revenues and expenses.

Answer: (A)

Closing entries focus on resetting the books for a new period. They take the balances from temporary accounts—revenues and expenses (and often drawings/dividends)—and move their net effect into a permanent equity account, typically Retained Earnings. This transfers the period’s net income or loss into equity and leaves those temporary accounts with zero balances so the next period can start fresh.

After those closing entries are posted, the post-closing trial balance is prepared. It lists only the permanent accounts—assets, liabilities, and equity—with their ending balances, ensuring the ledger still balances after the closings and that no temporary account carries a balance into the new period. This acts as a checkpoint before the new accounting period begins.

So the described process—closing temporary accounts to zero and transferring their balances to permanent equity, followed by a post-closing trial balance that shows only permanent accounts—is the correct concept.