During period-end closing, which accounts are closed to Retained Earnings?

• A. Revenue and expense accounts
• B. Asset and liability accounts
• C. Cash and inventories
• D. Revenue and expense accounts and dividends

Answer: (D)

At period end, you close temporary accounts to Retained Earnings to reset them for the new period and to reflect the period’s net result in equity. Revenue and expense accounts are temporary; their balances are transferred to Retained Earnings, showing net income or loss that increases or decreases retained earnings. Dividends are also closed to Retained Earnings because they reduce shareholders’ equity. Permanent accounts, like assets and liabilities (cash and inventories are examples of assets), stay open and carry their balances forward. So the accounts that get closed to Retained Earnings include revenue, expense, and dividends, making the option that combines all three the best choice.