Which statement about temporary accounts is true?

• A. They never reset to zero at period end.
• B. They close to zero each period.
• C. They carry balances to the next period.
• D. They are always asset accounts.

Answer: (B)

Temporary accounts track revenue, expenses, and withdrawals for a single period. As the period ends, these accounts are closed, which means their balances are transferred to permanent equity accounts (like retained earnings) and the temporary accounts are reset to zero for the next period. This clearing to zero is what allows each new period to start fresh and measure activity independently.

That’s why the statement that temporary accounts close to zero each period is true. They don’t carry their balances forward, and they aren’t all asset accounts—asset accounts are permanent and carry their balances forward.