Temporary Account

What is a Temporary Account?

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

Temporary Accounts

Temporary accounts are sometimes referred to as a nominal account. They are temporary because they last 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 wages and salaries expense account.

A temporary account is in contrast to a permanent 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 a long term asset account.

Both real accounts and personal accounts are permanent accounts.

For further information see the Wikipedia Temporary and Permanent Accounts definition.

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Last modified February 21st, 2019 by Team

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