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For each of the following accounts, indicate whether the account shown is a temporary or permanent account:

Account Temporary or Permanent
1. Cash [ Select ] ["Permanent", "Neither", "Temporary", "Both"]
2. Accounts Receivable [ Select ] ["Permanent", "Neither", "Both", "Temporary"]
3. Common Stock [ Select ] ["Temporary", "Permanent", "Both", "Neither"]
4. Accounts Payable [ Select ] ["Temporary", "Neither", "Permanent", "Both"]
5. Dividends [ Select ] ["Permanent", "Temporary", "Both", "Neither"]
6. Retained Earnings [ Select ] ["Permanent", "Both", "Neither", "Temporary"]
7. Rent Expense [ Select ] ["Permanent", "Both", "Temporary", "Neither"]
8. Unearned Revenue [ Select ] ["Permanent", "Both", "Temporary", "Neither"]

1 Answer

3 votes

Final answer:

Accounts like Cash, Accounts Receivable, Common Stock, Accounts Payable, and Retained Earnings are permanent accounts, while Dividends and Rent Expenses are temporary accounts. Unearned Revenue is a permanent account until the associated revenue is recognized.

Step-by-step explanation:

In accounting, there is a distinction between permanent accounts and temporary accounts. Permanent accounts are those that carry their balances over into the next accounting period, while temporary accounts are closed at the end of the accounting period and their balances are transferred to the Retained Earnings account.

  • Cash is a permanent account as it reflects a company's asset that rolls over into the next period.
  • Accounts Receivable is also a permanent account because it shows outstanding amounts that are expected to be collected in the future.
  • Common Stock is a permanent account as it reflects a part of the shareholders' equity and does not close at the end of the financial year.
  • Accounts Payable is a permanent account representing the money owed to creditors, which is carried over into the next period until paid.
  • Dividends are a temporary account as they represent a distribution of earnings to shareholders and are closed to Retained Earnings at year-end.
  • Retained Earnings is a permanent account as it accumulates the earnings after dividends, to be carried over each accounting period.
  • Rent Expense is a temporary account because it represents costs for the current period and is closed out to Retained Earnings at the end of the year.
  • Unearned Revenue is a permanent account until the revenue is earned and then it transitions to temporary revenue.
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