Question

5. The following are accounts reported in the financial statements: A. Income Statement B. Statement of Stockholders’ Equity C. Balance Sheet I. Indicate where each of the following accounts is reported in the financial statements using the letters above. (Identify all reports that may apply for each item below.) II. Identify if the account is permanent(P) or temporary (T). _________Wages Expense _________Unearned Revenues _________Dividends _________Accounts Receivable _________Rental Income _________Prepaid Rent _________Property Plant & Equipment _________Retained Earnings

Answer 1

Permanent accounts are also called real accounts because they never get closed up at the end of fiscal year. Which means those balances are carried over from one accounting period to another. These accounts stay open as long as the company remains in business. Real accounts are all assets accounts, liabilities ( includes unearned revenues) and equity accounts. These accounts are not zeroed out with closing entries at the end of the year like temporary accounts on the income statement.

Temporary accounts are accounts that go into your income statements (Revenue and Expenses Accounts) plus withdrawal account. These accounts get closed at the end of the fiscal year. Which means those balances are don’t carried over from one accounting period to another. Which accounts are temporary and need to be closed each year. Temporary accounts must be closed into retained earnings.

Classification of each given account

1. Wages Expense: - classified as expense in the Income statement. It is Temporary account because it get closed at the end of the year.
2. Unearned Revenues: - classified as a current liability on the balance sheet. It is Permanent account. Because these accounts stay open as long as the company remains in business.
3. Dividends: - Dividends will be reported in the financial statements as statement of stockholders' equity as a subtraction from retained earnings. The dividends account will be closed into retained earnings. Temporary accounts must be closed into retained earnings. So Dividends are Temporary accounts.
4. Accounts Receivable: - classified as a current asset on the balance sheet. It is Permanent account because it never get closed at the end of the year.
5. Rental Income: - :- classified as income in the Income statement. It is Temporary account because it get closed at the end of the year.
6. Prepaid Rent: - classified as a current asset on the balance sheet. It is Permanent account. Because these accounts stay open as long as the company remains in business.
7. Property Plant & Equipment: - classified as an asset on the balance sheet. It is Permanent account. Because they never get closed up at the end of fiscal year.
8. Retained Earnings: - the amount of retained earnings is reported in the stockholders' equity section of the balance sheet. It carries forward and keeps track of the company's previous income and losses from prior years. So it is Permanent account.