Question

What process must occur in order for all temporary accounts to have a zero balance?

Answer 1

The closing process is necessary for all temporary accounts to have a zero balance, wherein revenues, expenses, and dividends are transferred to the Retained Earnings account.

Step-by-step explanation:

The process that must occur for all temporary accounts to have a zero balance is called the closing process. This is typically performed at the end of an accounting period, where the balances of temporary accounts such as revenues, expenses, and dividends are transferred to permanent accounts, particularly the Retained Earnings account. The steps involved in closing process are as follows:

1. Close all revenue accounts to Income Summary.
2. Close all expense accounts to Income Summary.
3. Close the Income Summary account to Retained Earnings.
4. Close any dividend accounts to Retained Earnings.

Once these steps are completed, the temporary accounts will reflect a zero balance, indicating that the accounts have been closed and are ready for the next accounting period.