Identifying Temporary Accounts

Identifying Temporary Accounts

1. Identify which of the following are temporary accounts of ABC Company.
   A. All of the above
   B. ABC, Capital C. None of the above
   D. Depreciation Expense
   E. Equipment
   F. Interest Revenue
   G. Accumulated Depreciation
   Post-Closing Trial Balance
2. Service Revenue
   A. Yes
   B. No
3. Income Summary
   A. Yes
   B. No
4. Notes Payable
   A. Yes
   B. No
5. Interest Expense
   A. Yes
   B. No
6. Cash
   A. Yes
   B. No
7. Depreciation Expense
   A. Yes
   B. No
8. Accumulated Depreciation A. Yes
   B. No
9. Interest Payable
   A. Yes
   B. No
10. Interest Revenue.
    A. Yes
    B. No

The Correct Answer and Explanation is :

Identifying Temporary Accounts for ABC Company

Temporary accounts are those that are used to track financial activities during a specific period (usually one accounting period) and are then closed at the end of that period. These include revenue, expense, and dividend accounts.

Answer to Identifying Temporary Accounts:

• D. Depreciation Expense – Temporary Account
• F. Interest Revenue – Temporary Account
• Other Accounts:
• E. Equipment – Not a temporary account; it’s a permanent (real) asset account.
• G. Accumulated Depreciation – Not a temporary account; it’s a permanent (real) contra-asset account.

Explanation: Temporary accounts are closed to the Income Summary account at the end of each period. Depreciation Expense and Interest Revenue are both related to income and expenses during a period, so they are temporary accounts that will be closed out at the end of the period.

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Post-Closing Trial Balance

A post-closing trial balance is a listing of all accounts and their balances after closing entries have been made. After closing, only permanent accounts (such as assets, liabilities, and equity) remain open, while temporary accounts (such as revenue, expense, and income summary accounts) are closed.

Answer for the Post-Closing Trial Balance:

1. Service Revenue – B. No

• Service Revenue is a temporary account that has been closed to the Income Summary account.

1. Income Summary – B. No

• Income Summary is also a temporary account that is closed at the end of the accounting period.

1. Notes Payable – B. No

• Notes Payable is a permanent liability account and will appear in the post-closing trial balance.

1. Interest Expense – B. No

• Interest Expense is a temporary account, which will have been closed out during the period.

1. Cash – B. No

• Cash is a permanent asset account and will remain in the post-closing trial balance.

1. Depreciation Expense – B. No

• Depreciation Expense is a temporary account and will be closed out at the end of the period.

1. Accumulated Depreciation – A. Yes

• Accumulated Depreciation is a permanent contra-asset account and will be part of the post-closing trial balance.

1. Interest Payable – A. Yes

• Interest Payable is a permanent liability account and will remain in the post-closing trial balance.

1. Interest Revenue – B. No

• Interest Revenue is a temporary account and will have been closed out to the Income Summary account.

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Summary of the Temporary Accounts:

• Temporary Accounts: Depreciation Expense, Interest Revenue, Service Revenue, Income Summary, Interest Expense.
• Permanent Accounts: Equipment, Accumulated Depreciation, Notes Payable, Cash, Interest Payable.

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I’ll generate the image to represent this breakdown.

Here is an educational image representing temporary and permanent accounts in accounting. It clearly categorizes each type of account for easy understanding. Let me know if you need any further explanations!