Practice question · Multiple choice
At period end, revenue and expense accounts are closed to zero while assets and liabilities carry forward. Why are only some accounts reset?
Hints
- Ask what "revenue for the year" would mean if last year’s figure were still in the account.
- One statement covers a span; the other covers an instant.
Show the answer
A. Because revenues measure a period and must start each one empty
Why
The income statement reports a period and the balance sheet a moment, so their accounts behave differently. Closing is what makes "this year’s profit" a meaningful phrase.
Practise The Accounting Cycle
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More questions on The Accounting Cycle
- The trial balance balances perfectly. Can we be sure there are no errors?
- Which accounts are zeroed out during the closing process?
- The closing entry transfers the net profit or loss into the retained earnings account.
- Order the accounting cycle.
- Temporary or permanent? Sort each account.
- Match each source document to the transaction it evidences.
- A trial balance balances perfectly and the accounts still contain errors. Which class of error does it…