Multiple Choice
Which accounting process ensures that all revenue and expense accounts are reset to zero at the end of the accounting period, typically on the last day of the calendar year, so that yearly earnings are finalized?
3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following is NOT a temporary account?
A
Dividends
B
Service Revenue
C
Owner's Capital
D
Rent Expense
Verified step by step guidance1
Understand the concept of temporary and permanent accounts: Temporary accounts are used to record transactions for a specific accounting period and are closed at the end of the period. Examples include revenues, expenses, and dividends. Permanent accounts, on the other hand, carry their balances forward to the next accounting period and are not closed. Examples include assets, liabilities, and owner's equity accounts.
Analyze each account listed in the problem: Dividends, Service Revenue, Rent Expense, and Owner's Capital. Determine whether each account is temporary or permanent based on its nature and purpose.
Dividends: This account is temporary because it records distributions to owners during the accounting period and is closed to retained earnings at the end of the period.
Service Revenue: This account is temporary because it records income earned during the accounting period and is closed to the income summary at the end of the period.
Owner's Capital: This account is permanent because it represents the owner's equity in the business and is not closed at the end of the accounting period. Rent Expense: This account is temporary because it records costs incurred during the accounting period and is closed to the income summary at the end of the period.
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