At the end of the accounting year all the nominal accounts of the ledg...
Answer: (D) Not balanced and their balance is transferred to the profit and loss account
Description: The nominal accounts at the end of the year are not balanced but are closed by transferring their balance to the profit and loss accounts, hence they do not appear in the balance sheet.
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At the end of the accounting year all the nominal accounts of the ledg...
The Correct Answer is Option 'D': Not balanced and their balance is transferred to the profit and loss account.
Explanation:
At the end of the accounting year, the nominal accounts of the ledger book are not balanced and their balances are transferred to the profit and loss account. This process is known as closing the accounts.
Here's a detailed explanation of why option 'D' is the correct answer:
1. Nominal Accounts:
Nominal accounts include all the revenue, expense, and income accounts. These accounts are temporary in nature and are used to record transactions for a specific accounting period.
2. Purpose of Closing Accounts:
The main purpose of closing the accounts is to determine the net profit or net loss for the accounting period. By transferring the balances of nominal accounts to the profit and loss account, we can calculate the overall financial performance of the business during that period.
3. Closing Entries:
To close the nominal accounts, closing entries are made in the ledger. These entries involve transferring the balances of revenue and expense accounts to the profit and loss account.
4. Debit and Credit Entries:
The revenue accounts have credit balances, while the expense accounts have debit balances. To close the revenue accounts, their credit balances are transferred to the debit side of the profit and loss account. Similarly, the debit balances of expense accounts are transferred to the credit side of the profit and loss account.
5. Net Profit or Net Loss:
After transferring all the balances, the profit and loss account will show the difference between the revenue and expenses. If the credit side (revenue) is greater than the debit side (expenses), it represents a net profit. Conversely, if the debit side is greater, it indicates a net loss.
6. Transfer to Capital Account:
Once the net profit or net loss is calculated, it is transferred to the capital account. Net profit increases the capital, while net loss decreases it.
7. Balance Sheet:
After closing the nominal accounts, the balances of these accounts are zero, and the profit and loss account reflects the net profit or net loss. The balance sheet is prepared using the balances of real and personal accounts.
In conclusion, at the end of the accounting year, the nominal accounts are not balanced, and their balances are transferred to the profit and loss account to determine the net profit or net loss for the period.
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