Financial Accounting Quiz: Permanent Vs Temporary Accounts
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Permanent Vs Temporary AccountsQuestion 1 of 10

A company's pre-closing trial balance shows Interest Receivable $2,400, Interest Revenue $14,400, Bonds Payable $100,000, and Interest Expense $8,100. The company follows a December 31 year-end. Which of these accounts will have the same balance on both the pre-closing and post-closing trial balances?

Interest Receivable and Interest Revenue will maintain consistent balances since they both represent earned interest amounts
Interest Receivable and Bonds Payable will show identical balances since they represent ongoing financial position items
Bonds Payable and Interest Expense will remain the same since they both represent actual cash obligations to creditors
All accounts will show different balances due to year-end accrual adjustments required before closing entries
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Financial Accounting Quiz

Financial Accounting Quiz: Permanent Vs Temporary Accounts

Practice Permanent Vs Temporary Accounts in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Permanent Vs Temporary Accounts, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A company's pre-closing trial balance shows Interest Receivable $2,400, Interest Revenue $14,400, Bonds Payable $100,000, and Interest Expense $8,100. The company follows a December 31 year-end. Which of these accounts will have the same balance on both the pre-closing and post-closing trial balances?

  1. Interest Receivable and Interest Revenue will maintain consistent balances since they both represent earned interest amounts
  2. Interest Receivable and Bonds Payable will show identical balances since they represent ongoing financial position items (correct answer)
  3. Bonds Payable and Interest Expense will remain the same since they both represent actual cash obligations to creditors
  4. All accounts will show different balances due to year-end accrual adjustments required before closing entries
Explanation: Interest Receivable (asset) and Bonds Payable (liability) are permanent accounts that will appear with the same balances on both trial balances. Interest Revenue and Interest Expense are temporary accounts that will be closed to zero, so they'll show their balances on the pre-closing trial balance but zero on the post-closing trial balance.

Question 2

During year-end procedures, an accountant encounters these accounts: Supplies $3,800, Supplies Expense $9,200, Accounts Payable $15,600, and Purchase Returns $1,100. The accountant must prepare a post-closing trial balance. Which accounts should be included in this post-closing trial balance?

  1. Supplies, Supplies Expense, and Accounts Payable should be included since they represent actual resources and obligations
  2. All four accounts should be included since they all resulted from actual business transactions during the year
  3. Supplies Expense and Purchase Returns should be included since they represent the year's actual operating activities
  4. Supplies and Accounts Payable should be included, while Supplies Expense and Purchase Returns should be excluded (correct answer)
Explanation: When you encounter post-closing trial balance questions, remember that this financial statement only includes permanent accounts (balance sheet accounts) that carry forward to the next accounting period. Temporary accounts (income statement accounts) are closed to retained earnings at year-end and have zero balances. The correct approach is to identify which accounts are permanent versus temporary. Supplies (3,800)isanassetaccountthatappearsonthebalancesheet,representingresourcesstillownedbythecompany.AccountsPayable(3,800) is an asset account that appears on the balance sheet, representing resources still owned by the company. Accounts Payable (15,600) is a liability account showing amounts owed to creditors. Both are permanent accounts that carry forward their balances. In contrast, Supplies Expense (9,200)isatemporaryaccountthatmeasuresthecostofsuppliesconsumedduringtheyear.PurchaseReturns(9,200) is a temporary account that measures the cost of supplies consumed during the year. Purchase Returns (1,100) is also temporary, representing a reduction in cost of goods sold for the period. Both get closed to retained earnings and show zero balances after closing entries. Answer A incorrectly includes Supplies Expense, which is temporary despite representing "actual resources" consumed. Answer B wrongly assumes all transaction-based accounts belong in the post-closing trial balance, ignoring the permanent versus temporary distinction. Answer C gets it backwards by including only the temporary accounts while excluding the permanent ones. Answer D correctly identifies that only Supplies and Accounts Payable should appear in the post-closing trial balance. Study tip: Memorize this rule - post-closing trial balances contain only balance sheet accounts (assets, liabilities, equity). All income statement accounts (revenues, expenses, gains, losses) are temporary and won't appear.

Question 3

During the preparation of closing entries, an accountant notices that the Income Summary account has a credit balance of $85,000 after closing all revenue and expense accounts. Which statement best describes the subsequent treatment of this balance and its impact on permanent accounts?

  1. The $85,000 credit balance should remain in Income Summary as it represents cumulative earnings for future reference
  2. The $85,000 should be debited to Income Summary and credited to Retained Earnings, increasing the permanent equity balance (correct answer)
  3. The $85,000 should be credited to Income Summary and debited to Retained Earnings, decreasing the permanent equity balance
  4. The $85,000 should be transferred to Common Stock as it represents additional paid-in capital from profitable operations
Explanation: A credit balance in Income Summary indicates net income. This temporary balance must be closed by debiting Income Summary for $85,000 and crediting Retained Earnings for $85,000, thereby transferring the net income to the permanent equity account. Income Summary itself must be zeroed out as it's a temporary account used only during the closing process.

Question 4

A corporation's trial balance includes Accumulated Depreciation $75,000, Depreciation Expense $12,000, Treasury Stock $8,000, and Dividends Declared $5,000. An accounting student must identify which of these accounts will appear on the post-closing trial balance. What is the correct classification?

  1. Accumulated Depreciation and Depreciation Expense will appear since they both relate to the same underlying assets
  2. Treasury Stock and Dividends Declared will appear since they both represent transactions with shareholders
  3. Accumulated Depreciation and Treasury Stock will appear since they represent ongoing balances affecting financial position (correct answer)
  4. Only Accumulated Depreciation will appear since it's the only account that directly affects asset valuation
Explanation: Accumulated Depreciation and Treasury Stock are permanent accounts that appear on the post-closing trial balance. Accumulated Depreciation is a contra-asset account, and Treasury Stock is a contra-equity account—both maintain balances across periods. Depreciation Expense and Dividends Declared are temporary accounts that are closed to zero at year-end.

Question 5

A small business owner reviews her chart of accounts and finds: Unearned Revenue, Prepaid Insurance, Sales Returns and Allowances, and Owner's Capital. She needs to determine which accounts will require closing entries at year-end versus which will carry forward unchanged. What is the appropriate analysis?

  1. Unearned Revenue and Prepaid Insurance require closing since they represent temporary timing differences between periods
  2. Sales Returns and Allowances requires closing, while Unearned Revenue, Prepaid Insurance, and Owner's Capital carry forward (correct answer)
  3. Owner's Capital requires closing to capture the year's earnings, while the other accounts carry forward as balance sheet items
  4. All four accounts carry forward unchanged since they represent actual cash flows or ownership interests that persist
Explanation: Sales Returns and Allowances is a temporary contra-revenue account that must be closed. Unearned Revenue (liability), Prepaid Insurance (asset), and Owner's Capital (equity) are all permanent accounts that appear on the balance sheet and carry forward to the next period, though Owner's Capital will be adjusted by the closing process.

Question 6

A partnership's general ledger includes Partner A Capital $75,000, Partner A Drawings $18,000, Fee Revenue $235,000, and Office Equipment $45,000. At year-end, which accounts will appear on the balance sheet after all closing procedures are completed?

  1. Partner A Capital and Partner A Drawings will appear since they both represent the partner's financial interest in the business
  2. Fee Revenue and Office Equipment will appear since they represent the business's earning capacity and productive assets
  3. Partner A Capital and Office Equipment will appear, with Partner A Capital adjusted for the year's earnings and drawings (correct answer)
  4. Partner A Drawings and Office Equipment will appear since they represent actual resource outflows and asset investments
Explanation: When you encounter questions about year-end balance sheets and closing procedures, focus on understanding which accounts are permanent (balance sheet accounts) versus temporary (income statement accounts that get closed to capital). The closing process transfers all temporary account balances to the partners' capital accounts, then zeros out the temporary accounts. Here's what happens to each account: Partner A Drawings (a temporary account) gets closed by crediting it for $18,000 and debiting Partner A Capital, reducing the capital balance. Fee Revenue (also temporary) gets closed by debiting it for $235,000 and crediting Partner A Capital, increasing the capital balance. Office Equipment is a permanent asset account that never gets closed—it stays on the balance sheet at its $45,000 balance. Partner A Capital, also permanent, remains on the balance sheet but gets adjusted to $75,000 - $18,000 + $235,000 = $292,000 (assuming no other income statement items). Answer A is wrong because Partner A Drawings is a temporary account that disappears after closing—only the capital account represents the partner's ongoing financial interest. Answer B is incorrect because Fee Revenue is temporary and gets closed out; while Office Equipment does appear on the balance sheet, revenue accounts never do. Answer D fails because Partner A Drawings gets eliminated during closing procedures and won't appear on the final balance sheet. Remember this pattern: permanent accounts (assets, liabilities, capital) survive to the balance sheet, while temporary accounts (revenues, expenses, drawings) get absorbed into capital during closing.

Question 7

An accounting student observes that both Depreciation Expense and Accumulated Depreciation increase when recording monthly depreciation, and wonders why one is closed at year-end while the other is not. Similarly, the student notes that both Cash and Sales Revenue increase the company's resources. What principle explains the different treatment of these account pairs during closing procedures?

  1. Accounts that measure periodic activity are temporary, while accounts that represent cumulative financial position are permanent (correct answer)
  2. Accounts that increase company resources are temporary, while accounts that decrease resources or represent obligations are permanent
  3. Accounts with debit balances are permanent, while accounts with credit balances are temporary and must be closed annually
  4. Accounts that appear on the income statement are permanent, while accounts that appear on the balance sheet are temporary
Explanation: When you encounter questions about closing procedures, focus on the fundamental distinction between temporary and permanent accounts. This concept determines which accounts get reset to zero at year-end and which carry forward their balances. The correct answer is A because it captures the core principle: temporary accounts measure activity for a specific period (like monthly or annual performance), while permanent accounts represent the company's cumulative financial position at a point in time. Depreciation Expense measures this period's depreciation activity, so it's closed to start fresh next year. Accumulated Depreciation represents the total depreciation since the asset was acquired, so it remains open. Similarly, Sales Revenue measures this period's sales activity (temporary), while Cash represents the company's current cash position (permanent). Option B incorrectly focuses on whether accounts increase resources. Both Cash (permanent) and Sales Revenue (temporary) increase resources, showing this isn't the distinguishing factor. Option C reverses the truth about debit and credit balances - many permanent accounts have credit balances (like Accumulated Depreciation and liabilities), while some temporary accounts have debit balances (like expenses). Option D completely misses the mark by incorrectly stating that income statement accounts are permanent when they're actually the primary temporary accounts that get closed. Remember this pattern: temporary accounts (revenues, expenses, dividends) appear on the income statement and measure periodic performance, while permanent accounts (assets, liabilities, equity) appear on the balance sheet and show cumulative financial position. The closing process resets the "scoreboard" of periodic activity while preserving the ongoing financial position.

Question 8

A company's year-end closing process reveals the following account balances: Sales Revenue $450,000, Rent Expense $36,000, Retained Earnings $125,000, and Dividends $15,000. After all closing entries are posted, which accounts will retain their balances for use in the subsequent accounting period?

  1. Sales Revenue and Retained Earnings will maintain their balances, while Rent Expense and Dividends will be zeroed out
  2. Retained Earnings will maintain its balance, while Sales Revenue, Rent Expense, and Dividends will be zeroed out (correct answer)
  3. Sales Revenue and Rent Expense will maintain their balances, while Retained Earnings and Dividends will be zeroed out
  4. All four accounts will maintain their balances since they represent actual economic transactions that occurred
Explanation: Retained Earnings is a permanent account that carries forward to the next period (though its balance will be adjusted by the net income and dividends). Sales Revenue, Rent Expense, and Dividends are all temporary accounts that are closed to zero at year-end. Revenue and expense accounts are closed to Income Summary and then to Retained Earnings, while Dividends is closed directly to Retained Earnings.

Question 9

An accounting clerk is confused about whether Allowance for Doubtful Accounts should be closed at year-end, noting that it seems similar to Bad Debt Expense since both relate to uncollectible receivables. Additionally, the clerk questions whether Retained Earnings should be closed since it changes each year. How should these accounts be properly classified?

  1. Both Allowance for Doubtful Accounts and Retained Earnings should be closed since they both change annually based on business operations
  2. Allowance for Doubtful Accounts should be closed like Bad Debt Expense, while Retained Earnings carries forward as an equity account
  3. Allowance for Doubtful Accounts carries forward as a balance sheet account, while Retained Earnings should be closed to start fresh each year
  4. Both Allowance for Doubtful Accounts and Retained Earnings carry forward, though Retained Earnings will be adjusted through the closing process (correct answer)
Explanation: Allowance for Doubtful Accounts is a permanent contra-asset account that appears on the balance sheet and carries forward. Retained Earnings is also permanent and carries forward, though it will be adjusted by closing net income and dividends to it. The fact that these accounts change doesn't make them temporary—temporary accounts are those that measure activity for a specific period (revenues, expenses, dividends).

Question 10

After posting all closing entries, a company's general ledger shows the following accounts with non-zero balances: Cash $45,000, Service Revenue $0, Salaries Payable $3,200, Interest Expense $0, and Common Stock $25,000. What does this pattern indicate about the closing process?

  1. The closing process was completed correctly, with temporary accounts properly zeroed and permanent accounts maintaining balances (correct answer)
  2. The closing process was incomplete because some revenue and expense accounts should maintain small balances for comparison purposes
  3. The closing process was performed incorrectly because liability accounts should be closed along with revenue and expense accounts
  4. The closing process was performed incorrectly because asset accounts should be zeroed out while revenue accounts maintain balances
Explanation: The pattern shows proper closing: temporary accounts (Service Revenue and Interest Expense) have been closed to zero, while permanent accounts (Cash, Salaries Payable, and Common Stock) retain their balances. This is exactly what should occur after closing entries are posted.