Respond to the following in a minimum of 175 words:

You have just been hired as an accountant for a small, family owned, lawn maintenance company. Upon reviewing the general ledger, you notice that the revenue and expense accounts have not been closed for a few years. When you questioned the owner about if they were aware of this fact, their response was, No, we just assumed our business was growing from one year to the next. Our revenues are increasing and so are our expenses so why should we be concerned?

Discuss the differences between permanent and temporary accounts and why it is important to close the latter. Explain the effect of closing entries on the balance of the owners capital account.