Accounting Fundamentals Certification (AFC) 2025 – 400 Free Practice Questions to Pass the Exam

At the end of the fiscal period, the balances of temporary accounts, which include revenues, expenses, and dividends, are summarized and transferred to the owner's capital account. This process is known as closing the accounts. By doing this, the balances of temporary accounts are reset to zero for the next accounting period, allowing for a fresh start. This transfer ensures that the net income or loss for the period is reflected in the equity section of the balance sheet under the owner's capital, thereby updating the owner's stake in the business based on the performance during the fiscal period. This is a crucial aspect of the accounting cycle, as it allows for the accurate measurement of financial performance over each accounting period.

Other options do not appropriately describe the process. Temporary accounts are not simply forgotten; they play a critical role in tracking income and expenses. While they are tracked in the general ledger during the period, it's not correct to say they're transferred there at the end of the period. Additionally, they are not just closed out without any action, as that would neglect the essential step of summarization and transfer to equity accounts.