Which of the following accounts is not closed during the closing process?
a. Income Summary
b. Owner’s Capital
c. Commissions Revenues
d. Owner’s Withdrawals
The correct answer and explanation is :
The correct answer is:
b. Owner’s Capital
Explanation:
The closing process is an essential step in the accounting cycle that occurs at the end of an accounting period. It involves closing (zeroing out) temporary accounts to prepare the accounting records for the next period. Temporary accounts include revenues, expenses, and withdrawals, while permanent accounts remain open and carry their balances into future periods.
1. Temporary vs. Permanent Accounts
- Temporary Accounts (Closed at the End of the Period):
- Revenue accounts (e.g., Commissions Revenues)
- Expense accounts
- Income Summary (used to summarize revenues and expenses before closing to Owner’s Capital)
- Owner’s Withdrawals (Drawings)
- Permanent Accounts (Remain Open):
- Assets (e.g., Cash, Accounts Receivable)
- Liabilities (e.g., Accounts Payable, Notes Payable)
- Owner’s Equity (Owner’s Capital account)
2. Explanation of the Answer Choices
- Income Summary (a): This is a temporary account used to summarize revenues and expenses before transferring net income (or loss) to Owner’s Capital. It is closed at the end of the period.
- Owner’s Capital (b): This is a permanent account representing the owner’s equity in the business. It remains open and carries its balance forward to the next accounting period. (Correct Answer)
- Commissions Revenues (c): This is a revenue account and must be closed at the end of the period by transferring its balance to the Income Summary.
- Owner’s Withdrawals (d): This account tracks withdrawals by the owner and is closed by transferring its balance to Owner’s Capital.
Conclusion:
The Owner’s Capital account is not closed during the closing process because it is a permanent account that maintains a running balance of the owner’s equity in the business. Only temporary accounts are closed to reset them for the new period.