Which accounts are typically closed into Retained Earnings?

Which accounts are typically closed into Retained Earnings?

• A. Revenue, Expense, and Dividend/Withdrawal accounts
• B. Assets
• C. Liabilities
• D. Equity accounts only

Answer: (A)

Temporary accounts are reset to zero at the end of a period by closing entries, and their balances are moved into Retained Earnings to reflect what happened during the period. Revenue and expense accounts are the classic temporary accounts because they only apply to a specific period and their balances are used to compute net income. When you close them, the net result (net income or net loss) is transferred to Retained Earnings, updating the accumulated profits kept in the business. Dividends (or withdrawals) are also closed into Retained Earnings because they reduce the owners’ equity that has been earned and kept in the company. Closing the dividends transfers their balance to Retained Earnings, showing the impact of distributing profits to owners. Assets and liabilities, along with permanent equity accounts like common stock, are not closed because their balances carry forward into the next period. They stay open and accumulate over time, unlike the temporary revenue, expense, and dividend accounts. So the accounts typically closed into Retained Earnings are the revenue, expense, and dividend/withdrawal accounts.

Temporary accounts are reset to zero at the end of a period by closing entries, and their balances are moved into Retained Earnings to reflect what happened during the period. Revenue and expense accounts are the classic temporary accounts because they only apply to a specific period and their balances are used to compute net income. When you close them, the net result (net income or net loss) is transferred to Retained Earnings, updating the accumulated profits kept in the business.

Dividends (or withdrawals) are also closed into Retained Earnings because they reduce the owners’ equity that has been earned and kept in the company. Closing the dividends transfers their balance to Retained Earnings, showing the impact of distributing profits to owners.

Assets and liabilities, along with permanent equity accounts like common stock, are not closed because their balances carry forward into the next period. They stay open and accumulate over time, unlike the temporary revenue, expense, and dividend accounts.

So the accounts typically closed into Retained Earnings are the revenue, expense, and dividend/withdrawal accounts.