Accounting Fundamentals Certification (AFC) Practice Test 2025 – The Comprehensive All-in-One Guide to Exam Success!

The term "closing entries" in accounting specifically refers to the entries made at the end of an accounting period to transfer the balances of temporary accounts, such as revenues and expenses, to permanent accounts, typically retained earnings. This process effectively resets the temporary accounts to zero, preparing them for the next accounting period. By moving the balances to permanent accounts, closing entries ensure that the financial statements reflect only the revenues and expenses for the current period, allowing for an accurate depiction of profitability and financial position.

The other options do not accurately describe closing entries. Adjusting entries, for example, are different in that they are made to update account balances before financial statements are prepared, rather than involving the transfer of temporary balances. Summarizing the year’s financial position relates more to the preparation of financial statements than to the specific action of closing accounts. Documentation of the disposal of fixed assets involves unique entries to record asset removal and related gains or losses, which is also distinct from the closure of temporary accounts.