Regarding closing entries, which statement correctly describes Accumulated Depreciation?

• A. It is a temporary account and is closed directly to Retained Earnings at the end of the period.
• B. It is a temporary account and is closed to Income Summary at the end of the period.
• C. It is a permanent account that is closed to the Equipment account at the end of the period.
• D. It is a permanent (contra asset) account and is not closed at the end of the period.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the difference between temporary and permanent accounts. Temporary accounts include revenues, expenses, and dividends, which are closed at the end of the accounting period to reset their balances to zero for the next period.
2. Step 2: Recognize that Accumulated Depreciation is a contra asset account, meaning it reduces the value of a related asset (Equipment) on the balance sheet, and it accumulates over multiple periods.
3. Step 3: Since Accumulated Depreciation carries its balance forward and is not reset each period, it is classified as a permanent account, not a temporary one.
4. Step 4: Closing entries involve transferring the balances of temporary accounts to Retained Earnings via the Income Summary account, but permanent accounts like Accumulated Depreciation are not closed.
5. Step 5: Therefore, Accumulated Depreciation remains on the books after closing entries and continues to accumulate depreciation expense over the life of the asset.