Multiple Choice
Which of the following should NOT be considered cash by an accountant?
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1. Introduction to Accounting
Types of Accounting
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Which of the lists below contains only permanent accounts?
A
Service Revenue, Rent Expense, Dividends
B
Sales Revenue, Utilities Expense, Interest Income
C
Salaries Expense, Supplies Expense, Income Summary
D
Cash, Accounts Receivable, Retained Earnings
Verified step by step guidance1
Understand the concept of permanent accounts: Permanent accounts are balance sheet accounts that carry their balances forward into the next accounting period. These include assets, liabilities, and equity accounts.
Review the provided lists and identify the types of accounts in each list. For example, Service Revenue, Rent Expense, and Dividends are temporary accounts because they are closed at the end of the accounting period.
Recognize that temporary accounts include revenue, expense, and dividend accounts, which are closed to the Income Summary or Retained Earnings at the end of the period.
Focus on the correct answer: Cash, Accounts Receivable, and Retained Earnings. These are permanent accounts because they appear on the balance sheet and their balances are carried forward to the next period.
Conclude that permanent accounts are essential for tracking the financial position of a company over time, while temporary accounts are used to measure performance within a specific period.
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