Multiple Choice
Which of the following is a temporary account?
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3. Accrual Accounting Concepts
Closing Entries
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Which of the following accounts is closed at the end of the accounting cycle?
A
Accounts Receivable
B
Retained Earnings
C
Service Revenue
D
Equipment
Verified step by step guidance1
Step 1: Understand the concept of closing entries. Closing entries are made at the end of the accounting cycle to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to permanent accounts (such as Retained Earnings). Temporary accounts are closed to reset their balances to zero for the next accounting period.
Step 2: Identify the types of accounts listed in the problem. Accounts Receivable and Equipment are asset accounts, which are permanent accounts. Retained Earnings is a permanent equity account. Service Revenue is a temporary account because it represents income earned during the period.
Step 3: Recall that only temporary accounts are closed at the end of the accounting cycle. This includes revenue accounts, expense accounts, and dividend accounts. Permanent accounts, such as assets, liabilities, and equity accounts, are not closed.
Step 4: Recognize that Service Revenue is a temporary account and is closed at the end of the accounting cycle. Its balance is transferred to Retained Earnings as part of the closing process.
Step 5: Conclude that the correct answer is Service Revenue, as it is the only account listed that is closed at the end of the accounting cycle.
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