Multiple Choice
What is the primary goal of the closing process in financial accounting?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
In the closing process, is Accumulated Depreciation considered a permanent (real) account?
A
Yes; but it is closed to Depreciation Expense to reset its balance each period.
B
No; it is a revenue account that is closed to Income Summary during the closing process.
C
Yes; it is a contra-asset balance sheet account that carries its balance forward to the next period.
D
No; it is a temporary account that is closed to Retained Earnings at the end of each period.
Verified step by step guidance1
Step 1: Understand the classification of accounts in accounting. Permanent (real) accounts are balance sheet accounts whose balances carry forward to the next accounting period, while temporary (nominal) accounts are income statement accounts that are closed at the end of each period.
Step 2: Identify the nature of Accumulated Depreciation. It is a contra-asset account linked to fixed assets, which means it reduces the asset's book value on the balance sheet.
Step 3: Recognize that Accumulated Depreciation is not an expense account but a balance sheet account, so it is not closed to Income Summary or Retained Earnings during the closing process.
Step 4: Recall that only temporary accounts like revenues, expenses, and dividends are closed at the end of the period to reset their balances for the next period.
Step 5: Conclude that Accumulated Depreciation is a permanent account because it carries its balance forward and is not closed during the closing process.
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