The temporary owners equity are closed because they apply to only one accounting period?
What is your school subject? What is your question?
And what does the subject have to do with Everest?
The verb "are" does not go with the singular noun "equity".
Yes, temporary owners' equity accounts are closed at the end of each accounting period because they specifically relate to that period's revenues, expenses, gains, and losses. These accounts, such as revenue, expense, and dividend accounts, are used to measure the performance of a company during a specific period of time.
To close temporary owners' equity accounts, you need to follow these steps:
1. Identify the temporary accounts: Temporary accounts include revenue accounts, expense accounts, and dividend accounts.
2. Calculate the net income or net loss: Calculate the difference between the total revenue and total expenses to determine the net income or net loss for the period. This amount will be transferred to the retained earnings account.
3. Close revenue accounts: Debit each revenue account for its balance and credit the income summary account for the same amount. This action zeroes out the revenue accounts.
4. Close expense accounts: Credit each expense account for its balance and debit the income summary account for the same amount. This step zeroes out the expense accounts.
5. Calculate the balance in the income summary account: Subtract the total of all debits from the total of all credits in the income summary account. The resulting amount will be either net income or net loss.
6. Close the income summary account: Transfer the balance from the income summary account to the retained earnings account. If there is a net income, credit the income summary account and debit the retained earnings account. If there is a net loss, debit the income summary account and credit the retained earnings account.
7. Close dividend accounts: Debit the retained earnings account for the total amount of dividends declared, and credit the dividends account for the same amount. This step zeroes out the dividend account.
By closing these temporary accounts, the company starts each accounting period with a fresh slate. The retained earnings account reflects the cumulative net income (or loss) from all previous periods, while the temporary accounts capture only the current period's activity.