Temporary accounting accounts are general ledger accounts reduced to zero at the end of a reporting period by the closing entries, with their balances transferred into equity, so the next period starts at zero. They hold one period of activity and carry none of it forward. The class is also called nominal accounts, and revenue, expense, gain, loss and distribution accounts all belong to it.
What Makes an Account Temporary
What makes an account temporary is what it measures. A temporary account measures a period. A permanent account measures a position at a date, so it has to keep its balance to keep measuring.
The naming comes from federal accounting guidance, which defines a nominal account as one showing the accumulation of revenue and expenses for only one accounting period (Internal Revenue Manual 3.17.64.1.6, Terms/Definitions). Nominal and temporary name that group, real and permanent name the other, and all four words turn up in practice for the same two ideas. The matching definition of a real account sits beside the listing that proves a close in post-closing trial balance.
Zeroing an account is not erasing it. The balance moves into the equity account that carries the cumulative result, which is why revenue and expense sit outside retained equity all year and reach it only at the close. The entries that do the moving are worked through in accounting cycle.
What Accounts Are Temporary in Accounting?
Revenue accounts. Every account recording what the business earned in the period, whatever the chart calls it: sales, fees earned, service revenue, interest income. What that measure covers is set out in sales revenue.
Expense accounts. Every account recording what the period consumed: salaries, rent, utilities, depreciation expense, supplies. The element itself is defined in expense.
Gain and loss accounts. A gain on the sale of equipment, or a loss on a disposal, belongs to the period the transaction fell in, so it closes with the rest even though it sits outside ordinary operations.
Distribution accounts. A corporation’s dividends declared account and a sole proprietor’s drawing account both belong in the class, and they are easy to miss because they are neither revenue nor expense. The IRS sample recordkeeping system for a small business keeps the withdrawal visible on its own, giving it a column headed Drawing in the check disbursements journal instead of folding it into an expense column (IRS Publication 583, Starting a Business and Keeping Records, Rev. December 2024).
Be precise about the authority here, because the federal definition of a nominal account names revenue and expenses and stops there. What puts a distribution account in the class is the same test applied on its own terms: it records what owners took out during one period rather than a position at a date.
Income summary. This is the temporary account that exists only inside the close. It receives the revenue balances, then the expense balances, then passes the net result to equity in a final entry that empties it again, so it holds a balance for the length of a few journal entries and no longer. A ledger that closes revenue and expense straight to equity never opens one and reaches the same balances.
The classification follows the job the account does rather than where it sits. The IRS revenue accounting general ledger transfers its nominal accounts into Account 9998 at the end of each fiscal year, and that closing account, Reversals Revenue Clearance Accountability, is itself designated a nominal account (Internal Revenue Manual 3.17.64.1.6 and 3.17.64.7.17.1.3).
What Are the Differences Between Temporary and Permanent Accounts?
The split runs along the statements. Everything on the income statement is temporary, plus the distribution account, which belongs to neither the income statement nor the balance sheet and shows up instead in the movement traced by the statement of retained earnings. Everything on the balance sheet is permanent: cash, receivables, inventory, fixed assets, payables, accrued liabilities, notes payable, capital stock and the cumulative earnings account.
One question separates them. Does the balance answer how much during the period, or how much as of this date? The first closes. The second carries.
Permanent does not mean unchanging. A cash balance moves every day. It means the balance survives the period boundary rather than being reset at it, so the closing entries leave it exactly where they found it.
Why Comparability Across Periods Depends on the Close
Comparability is not only a question of one company against another. Information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date (FASB Concepts Statement No. 8, Chapter 3, paragraph QC20). The close is what makes the second half of that possible, because it is the step that stops one period’s activity being counted again in the next.
Say a firm’s fee revenue account collects the amounts below across two consecutive years.
Year 1 Year 2 Year 2 fee revenue as reported
Closing entries posted 480,000 510,000 510,000
Closing entries skipped 480,000 510,000 990,000The second row is not an error anyone can see in year 2 alone. The account holds a plausible balance, the ledger still ties, and the statements built on it look ordinary. It reads as wrong only beside year 1, and only if somebody knows what year 1 was.
That is what a live temporary account in a period already reported actually costs. The balance is itself the double count, and every comparison drawn across that period boundary is measuring two periods against one.
What Temporary Accounting Accounts Are Confused With
A contra account is not temporary. Accumulated depreciation carries a credit balance among the assets and survives the close untouched, because it reduces a permanent account and shares that account’s life. Contra describes the direction of a balance against its pair and temporary describes how long the balance lives, so one never answers the other (contra accounts).
A suspense or clearing account is not temporary either, whatever the name suggests. It holds an amount whose classification is not yet known, or whose transfer is not yet finished, and it is emptied by identifying the item and posting it where it belongs rather than by the closing entries. A suspense balance still sitting there at the period end is an open question, and it does not go to equity.
Temporary accounting in the staffing sense is a different phrase altogether. A temporary accountant is a contract hire and temporary accounting work is a short-term engagement. Neither describes an account on a chart of accounts.
Common Questions
Assets, liabilities, equity, revenue and expenses. The first three are permanent and the last two are temporary, with the distribution account the one temporary balance sitting on the equity side, so the five-type list and the temporary and permanent split are the same chart cut two different ways rather than two competing schemes.
Yes. An owner’s drawing account, or a corporation’s dividends declared account, records what came out during one period, so it is closed alongside revenue and expense and opens the next period at zero. It is not an expense and never reaches the income statement, which is why it reduces equity directly instead of reducing the period’s profit.
Accountably places trained offshore accountants inside US CPA and EA firms, and a firm can put one period of its own close work through a trial task and have its own reviewer grade what comes back.
