Permanent Account

What is a Permanent Account?

Each account in an bookkeeping system can be classified as a permanent account or a temporary account.

Permanent Account

A permanent account is a balance sheet account. It is permanent because it is not closed at the end of each accounting period.

At the start of the new accounting period, the closing balance from the previous accounting period is brought forward and becomes the new opening balance on the account.

An example of a permanent account is the accounts receivable account.

Both real accounts and personal accounts are permanent accounts.

A permanent account is in contrast to a temporary account.

Temporary Account

A temporary account sometimes referred to as a nominal account is an income and expenditure account. It is temporary because it lasts only for the accounting period.

At the end of the accounting period, the balance is transferred to the income statement and the account is closed with a zero balance. At the start of a new accounting period, an account will be opened only if there are transactions relating to that account.

An example of a temporary account would be the insurance expense account.

For further information see the Wikipedia Permanent Account definition.

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Permanent Account September 25th, 2015Team

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