What happens to temporary accounts at the end of the accounting period?

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Study for the Texas Aandamp;M University (TAMU) ACCT229 Exam. Get exam-ready with flashcards, detailed explanations, and multiple choice questions. Enhance your understanding and boost your confidence!

At the end of the accounting period, temporary accounts, which include revenues, expenses, gains, and losses, are closed out to the Retained Earnings account. This closing process involves transferring the balances from these accounts to reflect their net impact on the owner's equity for that accounting period. By doing this, the temporary accounts are reset to zero in preparation for the next accounting period, ensuring that only the results of that specific period are reported.

Closing to Retained Earnings allows for a clearer picture of the ongoing financial position of the company, as it consolidates the effect of all temporary activities into the overall equity section of the balance sheet. This ensures that during the next accounting period, the company can accurately track new revenues and expenses without the influence of prior period's transactions.

Other options do not accurately reflect how temporary accounts are handled. For example, transferring to permanent accounts would suggest that their balances carry forward, while remaining unchanged would not allow for accurate reporting of new period transactions. Summarizing for future periods does not properly capture the nature of temporary accounts, as they don’t carry balances forward.