What is the Difference Between a Permanent and Temporary Account?

Permanent accounts are also known as real accounts. They are accounts whose balances are carried to the next periods. Permanent accounts show accounts of the balance sheet. The actual worth of a company at a given time is reflected in permanent accounts. Permanent accounts are used to track financials from one fiscal year to the other. In particular, they track equity, liabilities, and assets. 

Temporary accounts are also known as nominal accounts. They contain balances that are not carried from one fiscal year to the other ( Ahmed, Herbert, & Kujala, 2017) . However, the balances are transferred to permanent accounts for closure. Temporary accounts help in tracking funds for a given fiscal year. They include finances categorized into revenues and expenses and can further be classified into inventories. 

Differences 

Temporary accounts have accounts that go into income statement. Additionally, the accounts don’t carry balanced to the next year and are thus closed. On the other hand, permanent accounts do not close at the end of a financial year. They include equity, liability, and asset accounts which stay open as long as business is running ( Ahmed, Herbert, & Kujala, 2017) . 

Closing process 

Closing process involves transfer of temporary accounts to permanent accounts at the end of an accounting period ( Johnsen & Sørensen, 2015) . The closing of temporary accounts helps accountants prepare for the next accounting period by moving the balance to zero. Temporary accounts include revenue and income accounts and expense and loss accounts. The following is an example of a closing entry 

References 

Ahmed, Z., Herbert, P., & Kujala, H. (2017).  U.S. Patent No. 9,734,321 . Washington, DC: U.S. Patent and Trademark Office. 

Johnsen, C. G., & Sørensen, B. M. (2015). ‘It's capitalism on coke!’: From temporary to permanent liminality in organization studies.  Culture and Organization ,  21 (4), 321-337.