What does it mean to "close the books"?

To "close the books" refers to the process of completing all necessary accounting entries for a specific accounting period, which is precisely why the selected answer is correct. This process typically happens at the end of an accounting period—whether it be monthly, quarterly, or yearly. During this time, companies review their account balances, make necessary adjustments, and ensure that all financial information is accurate and up-to-date. It culminates in the creation of financial statements, such as the income statement and balance sheet, which summarize the financial performance and position of the company for that period.

This process involves ensuring that all revenues and expenses are recorded, outstanding adjustments are made, and temporary accounts (such as revenues and expenses) are reset for the next accounting period. By closing the books, organizations ensure that they can begin the new accounting period with clean records, and it helps provide a clear financial picture of how the company performed during the previous period.