Question

True or False

Since Retained Earnings is involved in the closing process, it is considered a temporary account.

Answer 1

Retained Earnings is not considered a temporary account but a permanent account in accounting.

Step-by-step explanation:

False. Retained Earnings is not considered a temporary account but a permanent account in accounting. It represents the accumulated profits of a company that have not been distributed to shareholders as dividends.

Temporary accounts, on the other hand, are used to track revenues, expenses, and dividends for a specific accounting period. These accounts are closed at the end of each period, transferring their balances to the Retained Earnings account.

For example, the revenue and expense accounts are temporary accounts that are closed at the end of a period to determine the net income, which is then added or subtracted from the Retained Earnings account.