What is the primary purpose of closing entries in accounting?

The primary purpose of closing entries in accounting is to bring all temporary accounts to zero and transfer their balances to Retained Earnings. This process is essential at the end of an accounting period because it allows companies to "close the books" for that period and reset the temporary accounts—such as revenue, expense, and dividend accounts—so they can start fresh for the next accounting period. This reset ensures that the company's financial statements reflect only the current period’s transactions.

When temporary accounts are closed, their balances are summed up and transferred to the Retained Earnings account, which represents the cumulative profits and losses that the company has retained over time. This transfer not only zeroes out the temporary accounts for the next period but also updates the equity section of the balance sheet, reflecting the company’s net results from the previous period.

In contrast, other options do not accurately reflect the function of closing entries. For instance, resetting all accounts to their original balances is misleading because only temporary accounts are reset, while permanent accounts remain unchanged. Keeping all accounts active is not the goal of closing entries; their purpose is to prepare for the next reporting period. Lastly, calculating net income is part of the overall accounting process but is not the specific function of closing entries. Instead,