Question

Assume that one of your classmates states that a company’s books should be ongoing and

therefore not closed until that business is terminated. Write a half-page memo to this classmate explaining

the concept of the closing process by drawing analogies between (1) a scoreboard for an athletic

event and the revenue and expense accounts of a business or (2) a sports team’s record book and retained

earnings. (Hint:Think about what would happen if the scoreboard were not cleared before the

start of a new game.)

Short answer

Answer:

Closing of the accounts is done at the end of the year

Step-by-step solution

Definition of the revenue

The amount earned by the company from the sale of goods or services is known as the revenue.

Concept of closing

The closing process is an essential part of the company’s activities. It should be done at the end of the year or before starting a new year. To understand the closing concept of the company, the example of the athletic event is taken. Suppose an athletic event is going on, and after this event, another event of the athletic has been started. For starting this new event, the scoreboard of the ongoing event should be cleared, and all the necessary information from this should be taken. This process is known as the closing of the scoreboard. A similar process is used in the companies; in the companies, all the revenue and expense accounts should be closed before starting the new year. The closing of these accounts is done by adjusting their balances. The process of changing the proportions of accounts is known as the closing of accounts.