Which of the following is not a temporary account?
When it comes to accounting, understanding the difference between temporary and permanent accounts is crucial. Temporary accounts are those that are used to track the financial activities of a business over a specific period, typically a fiscal year. They include revenue, expenses, and withdrawals accounts, which are closed at the end of the fiscal year. On the other hand, permanent accounts are those that are not closed at the end of the fiscal year and carry over their balances to the next fiscal year. In this article, we will explore the characteristics of temporary accounts and identify which of the following options is not a temporary account.
Temporary accounts are essential for measuring the financial performance of a business during a specific period. They are categorized into three main types: revenue accounts, expense accounts, and withdrawal accounts. Revenue accounts record the income generated by the business, such as sales revenue and service revenue. Expense accounts, on the other hand, track the costs incurred by the business in generating revenue, such as salaries, rent, and utilities. Withdrawal accounts are used to record the owner’s withdrawals from the business for personal use.
Now, let’s examine the options and determine which one is not a temporary account:
1. Revenue account
2. Expense account
3. Withdrawal account
4. Assets account
The first three options are all temporary accounts. Revenue accounts, as mentioned earlier, track the income generated by the business. Expense accounts record the costs incurred in generating that income. Withdrawal accounts track the owner’s withdrawals from the business for personal use. These accounts are closed at the end of the fiscal year, and their balances are transferred to the owner’s equity section of the balance sheet.
The fourth option, “Assets account,” is not a temporary account. Assets are permanent accounts that represent the resources owned by the business. They include cash, accounts receivable, inventory, property, plant, and equipment. Unlike temporary accounts, assets are not closed at the end of the fiscal year and their balances are not transferred to the owner’s equity section. Instead, they carry over their balances to the next fiscal year, reflecting the changes in the value of the assets over time.
In conclusion, when considering which of the following is not a temporary account, the correct answer is “Assets account.” Understanding the distinction between temporary and permanent accounts is essential for accurate financial reporting and decision-making in a business. Temporary accounts help track the financial performance over a specific period, while permanent accounts provide a snapshot of the business’s resources and obligations at any given time.
