If the fiscal period ends, which accounts are reset to zero for the next period?

• A. Temporary accounts
• B. Permanent accounts
• C. Closing entries
• D. Post-closing trial balance

Answer: (A)

At period end, the closing process resets accounts that only hold activity for the current period. These temporary (nominal) accounts accumulate revenues, expenses, gains, losses, and dividends during the period. To measure performance for the period and keep the next period’s results clean and comparable, their balances are closed out to a clearing account and then into Retained Earnings. After closing, these accounts start fresh with zero balances in the new period, while permanent accounts such as assets, liabilities, and equity carry their ending balances forward. A post-closing trial balance shows only the permanent accounts. For example, revenue and expense totals are closed to zero, and net income affects Retained Earnings, which keeps the focus on period-specific results. Dividends are also closed to Retained Earnings, reducing it as part of the closing process.