Which type of accounts are not closed at year-end and carry balances to the next period?

• A. Temporary accounts
• B. Permanent accounts
• C. Revenue accounts only
• D. Expense accounts only

Answer: (A)

If you look at how accounts are treated at year-end, there are two groups: permanent (balance sheet) accounts and temporary (income statement) accounts. Temporary accounts—revenues, expenses, and dividends—are closed to zero at the end of the period, so they don’t carry their balances into the next period. Permanent accounts, which include assets, liabilities, and equity, are not closed; their ending balances roll forward to the next period. That’s why the type of accounts that carry balances to the next period is permanent accounts. For example, asset and liability balances remain and begin the new year with the same amounts, while revenue and expense accounts reset to zero after closing.