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At the end of the accounting year nominal accounts are _______
- a)Balanced and transferred to the P & L A/c
- b)Not balanced and transferred to P & L A/c
- c)Not balanced and transferred to balance sheet
- d)Balanced and transferred to balance sheet
Correct answer is option 'B'. Can you explain this answer?
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At the end of the accounting year nominal accounts are _______a)Balanc...
Explanation:
Nominal Accounts at the End of the Accounting Year:
At the end of the accounting year, nominal accounts are not balanced and transferred to the Profit and Loss Account.
Reason for not Balancing Nominal Accounts:
Nominal accounts are temporary accounts that are closed at the end of each accounting period. These accounts include all revenue and expense accounts. Since these accounts are closed at the end of the year, they do not need to be balanced like permanent accounts (assets, liabilities, equity).
Transfer to Profit and Loss Account:
The balances of nominal accounts are transferred to the Profit and Loss Account to determine the net income or loss for the accounting period. This helps in calculating the financial performance of the business during that period.
Importance of Transferring to P&L Account:
By transferring the balances of nominal accounts to the Profit and Loss Account, the company can accurately report its revenue, expenses, and ultimately its profit or loss. This information is crucial for decision-making and assessing the financial health of the business.
Therefore, at the end of the accounting year, nominal accounts are not balanced and are transferred to the Profit and Loss Account to finalize the financial statements for that period.
Nominal Accounts at the End of the Accounting Year:
At the end of the accounting year, nominal accounts are not balanced and transferred to the Profit and Loss Account.
Reason for not Balancing Nominal Accounts:
Nominal accounts are temporary accounts that are closed at the end of each accounting period. These accounts include all revenue and expense accounts. Since these accounts are closed at the end of the year, they do not need to be balanced like permanent accounts (assets, liabilities, equity).
Transfer to Profit and Loss Account:
The balances of nominal accounts are transferred to the Profit and Loss Account to determine the net income or loss for the accounting period. This helps in calculating the financial performance of the business during that period.
Importance of Transferring to P&L Account:
By transferring the balances of nominal accounts to the Profit and Loss Account, the company can accurately report its revenue, expenses, and ultimately its profit or loss. This information is crucial for decision-making and assessing the financial health of the business.
Therefore, at the end of the accounting year, nominal accounts are not balanced and are transferred to the Profit and Loss Account to finalize the financial statements for that period.
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At the end of the accounting year nominal accounts are _______a)Balanced and transferred to the P L A/cb)Not balanced and transferred to P L A/cc)Not balanced and transferred to balance sheetd)Balanced and transferred to balance sheetCorrect answer is option 'B'. Can you explain this answer?
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