Temporary accounts are closed at the end of each accounting year.

Temporary accounts are closed at the end of each accounting year.

• A. No
• B. Not sure
• C. True
• D. Sometimes

Answer: (C)

Temporary accounts track activity for a single period—revenues, expenses, gains, losses, and drawings. At year end, these accounts are closed to reset them to zero for the next period. This process transfers the period’s net result into permanent accounts, typically into retained earnings or the owner's capital. The usual steps are to close revenue and expense accounts (often through an income summary) and then close that result into retained earnings. Drawings or dividends are also closed to retained earnings. Since the balances in temporary accounts do not carry forward, the statement that they are closed at the end of each accounting year is true.

Temporary accounts track activity for a single period—revenues, expenses, gains, losses, and drawings. At year end, these accounts are closed to reset them to zero for the next period. This process transfers the period’s net result into permanent accounts, typically into retained earnings or the owner's capital. The usual steps are to close revenue and expense accounts (often through an income summary) and then close that result into retained earnings. Drawings or dividends are also closed to retained earnings. Since the balances in temporary accounts do not carry forward, the statement that they are closed at the end of each accounting year is true.