Instead, they carry their balances forward, continuously accumulating data over time. This ongoing record provides a comprehensive view of the company’s financial position. Since temporary accounts are short-term accounts, their data entries are moved to relevant permanent accounts to close them and maintain long-term financial records.
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Definition and Example of Temporary Accounts
These accounts are set to zero at the start of each accounting period and are closed at its end to maintain an accurate record of accounting activity for that period. Preparing an income summary account, which shows the entity’s earnings and losses for the specified period, comes to a close with a summary of revenue and expense accounts. Revenue refers to the total amount of money earned by a company, and the account needs to be closed out at the end of the accounting year. To close the revenue account, the accountant creates a debit entry for the entire revenue balance.
By the end of this article, you’ll be able to clearly understand how these two accounts are truly different. To achieve this, you must record assets, liabilities, equity, revenue, and expenses accurately. The income summary must be transferred to the capital account because it is a temporary account by debiting the income summary for 33,550 and crediting the capital account for that value.