Question

h. 4 i Saved Which of the following statements about the Retained Earnings account is correct? Multiple Choice Retained Earnings is a permanent account, income statement accounts are temporary Retained Earnings and income statement accounts are all temporary accounts. Retained Earnings and income statement accounts are all permanent accounts. Retained Earnings is a temporary account, while income statement accounts are permanent accounts < Prev 5 of 5 Now o e here to search RE F2 F3 F4CC F5 F6 F7 FB F9

Answer 1

The correct answer will be the first option i.e Retained Earnings is a permanent account, income statements accounts are temporary. To understand the concept we need to first know the meaning of permanent account and a temporary account:

Permanent account:

These are those types of accounts for which you don't need to close the accounts at the end of the period and carry forward your cumulative balances from period to period. Permanent accounts are closed only when a business is wind up or sold. Some of the examples of Permanent account which generally includes assets, liabilities and equities are as follows:

(1) Retained Earnings

(2) Owners Equity

(3) Land and Building

(4) Accounts Payable

(5) Accounts Receivable etc.

Temporary accounts:

These are those types of accounts which does need to close their balances at the end of the accounting period as if we do not close them the balance between different periods will be mixed up and thus these accounts are reset to zero from year to year. All income statements accounts are considered as temporary accounts and are all general ledger accounts such as gains, revenues, expenses and losses accounts. Some of the examples of Temporary accounts are:

(1) Rent

(2) Advertisement expenses

(3) Sales return

(4) Earned interest

(5) Other expenses etc.