What happens to temporary accounts after closing entries?

• A. All temporary accounts have zero balances.
• B. Temporary accounts carry forward to the next period.
• C. Temporary accounts are closed only for revenue.
• D. Temporary accounts are assets.

Answer: (A)

Temporary accounts—revenues, expenses, and dividends—are used to measure activity for a single period. At period end, those balances are transferred to Retained Earnings through closing entries, and the temporary accounts are reset to zero so a new period can begin with clean plates for the new revenues and expenses. The usual steps involve moving revenues into an Income Summary, moving expenses into Income Summary (which nets to the period’s net income or loss), then transferring the Income Summary amount to Retained Earnings. Dividends are also closed to Retained Earnings, reducing retained earnings for the period. After closing, only permanent accounts—assets, liabilities, and equity not tied to the period’s results—carry forward. So temporary accounts end with zero balances.