Temporary accounts

Alternative term for Nominal a/c Accounts that are closed at the end of each accounting year. Included are the income statement accounts (revenues, expenses, gains, losses), summary accounts (such as income summary), and a sole proprietor's drawing account. emporary a/c contains ending !alances for a specified period such as month,"uarter or year. hese a/cs must !e closed.. he closing process gives the revenue,expense and drawing acs a #ero !alance. his process prepares the revenue, expense and drawing a/cs for the next a/cing period. Why temporary accounts do not appear on the balance sheet? he most common ones are $evenue (income) and %xpenses. hese accounts are closed out (!ecause they are temporary) and affect the Net Income which in turn affects $etained %arnings, which is listed on the &alance 'heet. o try and explain (why( is !ecause temporary accounts are used to figure either Net )rofit or Net loss. hey are closed out leaving them with a !alance of *+. At the end of the period in which we choose (usually monthly for income) we ,e close out our expense accounts in order to figure our monthly Net )rofit or -oss. $evenue and %xpenses affect only our Income 'tatement and our 'tatement of $etained %arnings. Nominal account $evenue or expense account that is a su!division of the owners' e"uity account, and which is closed to a #ero !alance at the end of each accounting period. It starts with a #ero !alance at the !eginning of a new accounting period, accumulates !alances during the period, and returns to #ero at the year end !y means of closing entries. Nominal accounts are income statement accounts and are also called 'temporary accounts' in contrast to !alance sheet (asset, lia!ility, and owners' e"uity) accounts which are called 'permanent accounts' or 'real accounts.' Nominal accounts are .ust headings, under which you analyse your income and expenditure, for example /0ees1, /2ommissions1, /%lectricity1, /'tationery1, /0urniture1, /'alaries1, / elephones1, etc. Income nominals are typically referred to as /'ales1 nominals, while expenditure ones are called /)urchase1 nominals. 3ou could instead choose to set up .ust a single nominal account for all expenditure called /All office overheads1, !ut o!viously you will get a more informed view of your costs via the detailed !rea4down.

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