SAP Business One Certification Practice Exam

Must the bookkeeping balance of the balance sheet account be cleared every year?

1. Yes

2. No

3. Only in non-profit organizations

4. Only for large businesses

The correct answer is: No

The bookkeeping balance of the balance sheet account does not need to be cleared every year. This is because balance sheet accounts such as assets, liabilities, and equity are meant to carry over balances from one period to another, reflecting the ongoing financial position of the business. In contrast, income statement accounts like revenues and expenses are closed at the end of the fiscal year to reflect the results of operations for that specific period. By maintaining their balances, balance sheet accounts provide continuity and a cumulative view of the company's finances, allowing stakeholders to assess the overall financial health of the organization over time. Consequently, clearing the balances of these accounts each year would undermine the financial reporting process and distort the true financial position of the business. Organizations, regardless of size or whether they're for-profit or non-profit, typically adhere to this practice as part of standard accounting principles.