Temporary Accounts
What are Temporary Accounts?
Temporary accounts are accounts that are closed out at the end of the accounting period.
![ta1](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta1.jpg)
Permanent V’s
Temporary Accounts
Permanent Accounts
Permanent accounts are accounts that are never closed out.
![ta2](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta2.jpg)
Balance sheet accounts are permanent accounts.
![ta3](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta3.jpg)
They show what a business owns and what it owes at all times
![ta4](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta4.jpg)
These accounts are always changing, but they never just disappear.
![ta5](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta5.jpg)
This is because the business will always own something and always owe something.
![ta6](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta6.jpg)
For example, it may own equipment, or money in the bank, or inventory.
![ta7](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta7.jpg)
At the same time, the business will usually owe money to others.
![ta8](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta8.jpg)
This may be a loan or money owed to trade creditors.
![ta9](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta9.jpg)
Even if the business doesn’t owe money to others, it will owe the value of any assets help to the owners or shareholders
![ta10](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta10.jpg)
You can take the information from these accounts and create a balance sheet at any time.
![ta11](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta11.jpg)
This could be at the beginning of a period.
![ta12](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta12.jpg)
It could be half way through the period.
![ta13](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta13.jpg)
Or it could be at the the end of the period
![ta14](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta14.jpg)
Temporary Accounts
Temporary accounts are different.
![ta15](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta15.jpg)
They are closed out at the end of each period.
![ta16](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta16.jpg)
Income & expense accounts are temporary accounts.
![ta17](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta17.jpg)
Their purpose is to collect trading information for the current period, only.
![ta18](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta18.jpg)
They start off empty at the beginning of the period.
![ta19](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta19.jpg)
Then they’re updated along the way.
![ta20](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta20.jpg)
And at the end of the period, you take this information and create an income statement.
![ta21](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta21.jpg)
Once done, the income & expense accounts have done their job.
![ta22](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta22.jpg)
So you close them out by bringing their balance to zero.
![ta23](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta23.jpg)
By doing this, you leave them empty, ready for the next period.
![ta24](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta24.jpg)
This is why they are known as temporary accounts
![ta25](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta25.jpg)
The information they contain only exists for the duration of the period
![ta26](https://seeaccountingnow.online/wp-content/uploads/2021/11/ta26.jpg)
© R.J. Hickman 2020