State BPA Fundamental Accounting Practice Exam

What is the starting balance for temporary capital accounts in each fiscal period?

1. Positive balance

2. Negative balance

3. Zero balance

4. Previous year’s balance

The correct answer is: Zero balance

The starting balance for temporary capital accounts in each fiscal period is a zero balance because temporary accounts, such as revenues, expenses, gains, and losses, are closed at the end of each accounting period. This process involves transferring their balances to permanent accounts, like retained earnings, to reflect the results of the period's activities. As a result, when the new fiscal period begins, these temporary accounts start fresh with no balance, thus ensuring accurate tracking of income and expenses for the current year. This approach allows for a clear comparison of financial performance over successive periods without the influence of prior period data.