Question

Which of the following is true concerning temporary and permanent accounts?A. Cash is a temporary accountB. Permanent accounts represent activity over the entire life of the companyC. Permanent accounts must be closed at the end of every reporting periodD. Temporary accounts represent activity over the previous three years

Answer 1

Answer:

• Option B. Permanent accounts represent activity over the entire life of the company is TRUE,

Explanation:

Briefly, temporaty accounts are closed at the end of the year, their balance is zeroed every year by transferring the balance to another account.

Then, option D. Temporary accounts represent activity over the previous three years is FALSE.

In contrast, the balance of permanent accounts are carried forward to the following year.

Then, option B. Permanent accounts represent activity over the entire life of the company is TRUE, and option C. Permanent accounts must be closed at the end of every reporting period is FALSE.

Most of the balance sheet accounts are permanent accounts. Some typical examples are Cash, Receivables, Inventory, Equipment, Payables, Capital,  Retained Earnings.

Then, the option A. Cash is a temporary account, is FALSE.

The income statement accounts are temporary accounts: Revenues, Expenses, Gains, Losses.