Income Statement Accounts Are Temporary Accounts With Balance Sheet Accounts Are Permanent Accounts

A temporary account is an account that is closed at the end of every accounting period to start a new period with a zero balance.

Income statement accounts are temporary accounts with balance sheet accounts are permanent accounts. Temporary accounts come in three forms. These accounts reflect activity over a period of time. You must close temporary accounts to prevent mixing up balances between accounting periods. Instead the permanent asset liability and equity accounts maintain balances year over year to trace the financial history of the company.

Permanent accounts balance sheet accounts that retain a perpetual balance. The objective is to see the profits or revenues as well as the accounting activity of individual periods. Income statement accounts that are closed out to a zero balance at the end of an accounting period. Therefore at the end of each accounting period these accounts get closed to retained earnings and begin with a balance of zero on the first day of the next accounting period.

For the most part balance sheet accounts will carry over from one year to the next which is what makes them permanent or real in nature. Permanent accounts these are your company accounts whose balances should b carried forward to the next accounting period including the contra account such as accumulated depreciation. Balance sheet accounts are temporary accounts and do retain their balances from one period to the next. Permanent accounts the income statement elements revenues and expenses are considered temporary accounts.

Permanent accounts are found on the balance sheet and are categorized as asset liability and owner s equity. When you close a temporary account at the end of a period you start with a zero balance in the next period. These accounts are not zeroed out with closing entries at the end of the year like temporary accounts on the income statement. All income statement accounts are considered temporary accounts.

It is never closed out to zero. You should transfer its balance to the owner s capital account and shouldn t be reported on the income summary account or the income statement account. Revenue expense and drawing accounts. After the amounts for the year have been reported on the income statement the balances in the temporary accounts will end up in a permanent account such as a corporation s retained earnings account or in a sole proprietor s capital account.

Income statement accounts are permanent accounts and do retina their balances from one period to the next.