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Key Terms

  • Closing Entries: Journal entries that transfer temporary account balances to permanent accounts
  • Current Ratio: Current Assets ÷ Current Liabilities; measures liquidity
  • Income Summary: Temporary account used in closing process to summarize revenues and expenses
  • Liquidity: Ability to meet short-term obligations using current assets
  • Permanent Accounts: Accounts that carry balances forward (assets, liabilities, equity)
  • Post-Closing Trial Balance: Trial balance prepared after closing entries, contains only permanent accounts
  • Temporary Accounts: Accounts closed at period end (revenues, expenses)
  • Working Capital: Current Assets - Current Liabilities; excess of current assets over current liabilities