temporary accounts
Financial Dictionary — Accounting Fundamentals
Definition
Accounts that are closed at the end of each accounting year. Included are the income statement accounts (revenues, expenses, gains, losses), summary accounts (such as income summary), and a sole proprietor's drawing account. (also called "nominal" accounts)
Use cases, Example & Why it matters
Use cases
- Used in day-to-day bookkeeping and journal entries to record transactions correctly.
- Used when preparing trial balances and reconciling accounts.
- Used when preparing trial balances and reconciling accounts.
Example
- Example: Accountants use **temporary accounts** when recording transactions and preparing the trial balance.
Why it matters
- Why it matters: Ensures accurate records, supports reliable reporting, and reduces posting and reconciliation errors.