---
title: "Temporary Accounts | Financial Accounting I"
description: "Temporary accounts are revenue, expense, and drawing accounts that reset after closing entries so Financial Accounting I can measure one period's profit or loss."
canonical: "https://fiveable.me/financial-accounting/key-terms/temporary-accounts"
type: "key-term"
subject: "Financial Accounting I"
---

# Temporary Accounts | Financial Accounting I

## Definition

Temporary accounts are accounts that collect activity for one accounting period and are closed to zero at period-end. In Financial Accounting I, they include revenue, expense, and drawing accounts.

## What It Is

Temporary accounts are the accounts in Financial Accounting I that track activity for one accounting period only. They do not keep their balances forever. At the end of the period, the balance is closed out so the next period starts fresh.

The main temporary accounts are revenue accounts, expense accounts, and drawing accounts. These accounts help you measure performance for a specific month, quarter, or year. If you left them open, next period's numbers would get mixed with this period's numbers, and your income statement would no longer show a clean result.

This is why temporary accounts are tied to the closing process. After the accounting period ends, their balances are transferred out with closing entries. Revenue and expense accounts feed into net income or net loss, and a drawing account reduces the owner's equity for a sole proprietorship. Once that transfer is done, the temporary accounts go back to zero.

A common way to think about them is this: temporary accounts answer, "How did the business do during this period?" Permanent accounts answer, "What does the business still have or owe?" The temporary accounts are used to build the income statement, then they get cleared so the next period can be measured separately.

For example, if a company earns $8,000 of service revenue and has $5,000 of expenses in December, those amounts stay in the temporary accounts until closing. At period-end, the business closes the revenue and expense balances so the next month does not start with December's totals still sitting there.

## Why It Matters

Temporary accounts sit at the center of the closing process, which is one of the last steps in the accounting cycle. If you can identify which accounts are temporary, you can tell what needs to be reset and what should stay on the books.

This matters because the income statement only makes sense for a single time period. Revenue and expense accounts accumulate activity during that period, so they give you the numbers needed to calculate net income or net loss. Without temporary accounts, the statement would blur together results from different periods.

It also connects to equity. In a sole proprietorship, the drawing account affects the owner's capital, so closing it out keeps the equity section accurate for the new period. That same idea shows up when you trace how profit gets moved into retained earnings or another permanent equity account.

Temporary accounts also help with error checking. If a revenue or expense account still has a balance after closing, something went wrong in the closing entries. That makes this term useful in journal-entry problems, account analysis, and any question where you have to decide whether an account should be zero at the start of the next period.

## Connections

### Closing Entries

Closing entries are the journal entries used to clear temporary accounts at period-end. When you understand temporary accounts, closing entries become the mechanical step that moves their balances into equity and resets them to zero for the next accounting period.

### [Permanent Accounts](/financial-accounting/key-terms/permanent-accounts)

Permanent accounts keep their balances from one period to the next, so they are the opposite of temporary accounts. Assets, liabilities, and equity accounts stay open because the business still owns them, owes them, or has them invested after the period ends.

### Income Statement

The income statement is built from temporary account balances, especially revenues and expenses. It shows performance for one period, which is why those accounts must be closed after the statement is prepared and reviewed.

### [Permanent Equity Account](/financial-accounting/key-terms/permanent-equity-account)

After temporary accounts are closed, the ending profit or loss is transferred into a permanent equity account. That keeps the owner's long-term equity record updated while still letting each period's performance stand on its own.

## On the AP Exam

A quiz or problem-set question will usually ask you to identify which accounts are temporary, choose which ones must be closed, or trace where a balance goes in the closing process. You may also be given account balances and asked to prepare closing entries or explain why an account should be zero after closing.

The safest move is to sort accounts by type first: revenue, expense, and drawing accounts are temporary, while asset, liability, and equity accounts are permanent. If the question includes a trial balance or journal entries, look for the accounts that belong on the income statement or the owner's withdrawals section. Those are the balances that get cleared out at period-end.

## Temporary Accounts vs Permanent Accounts

Temporary accounts are closed at the end of the period and start each new period at zero. Permanent accounts stay open across periods, so their balances carry forward on the balance sheet. If you mix them up, you will close the wrong accounts and distort either net income or ending balances.

## Key Takeaways

- Temporary accounts collect activity for one accounting period and are reset through closing entries.
- Revenue, expense, and drawing accounts are the main temporary accounts in Financial Accounting I.
- These accounts feed the income statement, so they must be separate by period to show correct net income or net loss.
- After closing, temporary accounts should have a zero balance, while permanent accounts keep their balances.
- If an account still has a balance after closing, that is a sign to recheck the closing entries.

## FAQs

### What are temporary accounts in Financial Accounting I?

Temporary accounts are accounts that record financial activity for one accounting period and are then closed to zero. In Financial Accounting I, they usually include revenue, expense, and drawing accounts. They help you measure performance for the period without mixing it into the next one.

### What accounts are temporary accounts?

Revenue accounts, expense accounts, and drawing accounts are temporary accounts. These are the accounts that get closed at period-end because they are tied to one period's results. Asset, liability, and equity accounts are not temporary.

### How are temporary accounts closed?

They are closed with closing entries that transfer their balances into a permanent equity account. Revenue and expense balances are moved so net income or net loss is captured, and drawing accounts are closed out separately. After that, the temporary accounts return to zero.

### What is the difference between temporary accounts and permanent accounts?

Temporary accounts reset every period, while permanent accounts carry balances forward. Temporary accounts are used to measure one period's income or loss, but permanent accounts show the continuing financial position of the business. That difference is why the closing process matters.

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