Which of the following account balances would not be affected by closing journal entries?
A. Interest expense
B. Accumulated depreciation
C. Dividends
D. Retained earnings
The correct answer and explanation is :
The correct answer is B. Accumulated depreciation.
Explanation:
In accounting, closing journal entries are made at the end of an accounting period to transfer the balances from temporary (nominal) accounts to permanent (real) accounts. Temporary accounts include revenue, expense, and dividend accounts, while permanent accounts are asset, liability, and equity accounts that carry their balances forward to the next period.
Now, let’s go through the options one by one:
- Interest expense: Interest expense is a temporary account, representing costs incurred during the period. Like all expense accounts, it gets closed at the end of the period. The balance in the interest expense account will be transferred to the Income Summary account, and eventually, it will affect Retained Earnings when the income summary balance is closed.
- Accumulated depreciation: This is a permanent account that represents the total depreciation taken on an asset over its useful life. It is a contra-asset account (it offsets the related asset account). Since accumulated depreciation is a permanent account, it is not closed at the end of the accounting period. Its balance carries forward into the next period as part of the asset’s total net book value.
- Dividends: Dividends are a temporary account representing distributions to shareholders. At the end of the period, the balance in the dividends account is closed to Retained Earnings, which is a permanent equity account. This closing entry ensures that the dividends for the period are deducted from retained earnings.
- Retained earnings: Retained earnings is a permanent equity account that represents the accumulated profits or losses of a business over time. While its balance is affected by closing entries (i.e., the transfer of net income or loss and dividends), it is not itself closed at the end of the period. Instead, the closing entries update its balance.
Conclusion:
The Accumulated depreciation account would not be affected by closing journal entries, as it is a permanent account, and thus its balance is carried forward to the next accounting period.