Which of the following accounts will be credited to close it? a. Accumulated Depreciation b. Fees Earned c. Depreciation Expense d. Rent Revenues
The Correct Answer and Explanation is:
The correct answer is a. Accumulated Depreciation.
To understand this, let’s first clarify the concept of “closing” accounts in accounting. Closing entries are made at the end of an accounting period to transfer temporary account balances to permanent accounts. Temporary accounts, such as revenue, expense, and dividend accounts, are closed to the income summary, while permanent accounts like asset, liability, and equity accounts are not closed.
Here’s how the options apply:
- Accumulated Depreciation: This is a contra-asset account, meaning it offsets the value of an asset (in this case, property, plant, and equipment) on the balance sheet. Accumulated Depreciation is a permanent account, and since permanent accounts are not closed, it will not be credited or debited during the closing process. Instead, its balance is carried forward to the next period.
- Fees Earned: This is a revenue account, which is a temporary account. Revenues are typically credited to increase the balance, and when closing accounts, revenue accounts like Fees Earned will be debited to close them, transferring the balance to the income summary.
- Depreciation Expense: This is an expense account, and like all expense accounts, it is a temporary account. Depreciation Expense will be credited to close it, transferring the balance to the income summary.
- Rent Revenues: This is also a revenue account, so it is treated the same as Fees Earned. It would be debited to close the balance, transferring it to the income summary.
So, the accumulated depreciation account does not get closed out because it is a permanent account. However, the temporary accounts like Fees Earned, Depreciation Expense, and Rent Revenues will be closed by making appropriate journal entries. The balance of accumulated depreciation remains on the balance sheet and is used for future periods.
