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What types of accounts are referred to as temporary accounts

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Question 1: What types of accounts are referred to as temporary or nominal accounts?

The book defines a temporary/nominal account as accounts on the income statement that are not carried forward from year to year. The accounts that are considered to be temporary/nominal accounts are revenue and expense accounts. If a company didn't close out revenue accounts, it could give the appearance that they are more profitable than they really are. This would be a result of reflecting previous years of revenue balances. Similarly, with expense accounts, one might look and assume that a company's expenses appear to be out of control if this account was carried forward.

Reference no: EM132875117

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