(L.O. 2) Which of the following accounts is a nominal (temporary) account?
Approach and Explanation: Write down the definition of a nominal (or temporary) account. A nominal account is an account which is closed at the end of an accounting period. Think of what types of accounts get closed—revenues, expenses, and dividends. Think of what types of accounts never get closed—asset, liability, common stock, and retained earnings. Identify the classification of each of the accounts mentioned:
|Accumulated Depreciation||Contra Asset|
When judging if an account is temporary or permanent (real), a contra account is classified in the same manner (temporary or permanent) as the account to which it relates. Hence, a contra asset account is a real account. (Solution = d.)
(L.O. 2) Certain accounts are closed at the end of an accounting period in order to:
Approach and Explanation: Review the two reasons for preparing closing entries: (1) closing entries prepare the temporary accounts for ...