Question

Which of the following statements is TRUE about T-account balance processing when one accounting period is over to prepare for the next one?

a) Balance Sheet T-accounts are always reset to zero when one accounting period is over.
b) Balance Sheet T-accounts balances are carried forward to the next accounting period as the beginning balance.
c) T-account balance processing at the end of each accounting period is up to the company's management
decision/policy.
d) Income Statement T-accounts' balances are carried forward to the next accounting period as the beginning
balance.

Answer 1

The balances of Balance Sheet T-accounts are carried over to the next accounting period, unlike Income Statement accounts which are reset to zero after closing entries are made.

Step-by-step explanation:

The correct statement about T-account balance processing when one accounting period is over to prepare for the next one is: b) Balance Sheet T-accounts balances are carried forward to the next accounting period as the beginning balance. This means that at the end of an accounting period, the balances in asset, liability, and equity accounts (which are all included on the Balance Sheet) are not reset to zero but are instead carried forward to the next period. Conversely, the balances in the Income Statement accounts, which include revenues and expenses, are transferred to the Retained Earnings account (a part of equity on the Balance Sheet) and are reset to zero for the new accounting period.