List Of Temporary Accounts In Accounting

Ever opened up a chart of accounts and felt like you were staring at alphabet soup? Here's the thing — yeah, same. Somewhere between "accounts payable" and "deferred revenue," there's a quiet little group most folks overlook: temporary accounts. And honestly? These are the ones doing the heavy lifting when it comes to understanding whether your business actually made money last quarter And it works..

So let's talk about them. No jargon dump. In practice, no textbook yawn-fest. Just a clear, honest look at what temporary accounts are, why they matter, and the full list of temporary accounts in accounting you actually need to know.

What Are Temporary Accounts?

Here's the short version: temporary accounts are accounts that get closed out at the end of every accounting period. Single. One. Every. Think of them like a dry-erase board — you write on them, you report on them, and then you wipe them clean so you're starting fresh next period Worth knowing..

The whole point is to measure performance over a specific chunk of time. Just this year. Not your whole life as a business. Just this month. Just this quarter. Once that period closes, the balances in these accounts get zeroed out (or transferred out) and the slate resets Turns out it matters..

That's the key difference between temporary and permanent accounts. Permanent accounts — your assets, liabilities, and equity — keep rolling forward. They accumulate. Your cash balance carries over. Your loans carry over. But temporary accounts? They report, reset, and report again And that's really what it comes down to. Turns out it matters..

Why They're Called "Nominal" Accounts Too

You'll hear accountants use the word nominal for these. Same thing. "Nominal" comes from the idea that these accounts exist in name only for a period — they don't represent lasting value on the balance sheet. They're just measuring tools for income and outflows during a window of time That's the part that actually makes a difference..

Why Temporary Accounts Matter

So why bother wiping them clean? Why not just let everything accumulate?

Because if you didn't close them, you'd never actually know what you earned this year. Your revenue account would be a giant running total going back to 2014. Useless for decision-making That's the part that actually makes a difference. And it works..

Temporary accounts let you see, clearly, what happened in a defined period. Did revenue spike in Q3? Did expenses balloon in November? You'd never catch those patterns if everything was lumped together.

And there's a bigger payoff. That number is your profit. Here's the thing — at year-end, the net result of all your temporary accounts — basically, revenue minus expenses — flows into retained earnings on the balance sheet. It tells the real story of how the business did. Without temporary accounts, that calculation would be a nightmare.

This changes depending on context. Keep that in mind Most people skip this — try not to..

In practice, closing temporary accounts is also how you keep your books clean for tax season, audits, and just generally knowing what's going on. Skip the closing process, and your financial reports start lying to you Not complicated — just consistent. That's the whole idea..

The Complete List of Temporary Accounts in Accounting

Okay, this is the part you actually came for. Let's break down every type of temporary account you'd typically see on a chart of accounts, grouped by what they do.

Revenue Accounts

These are probably the most familiar. Revenue accounts track every dollar that comes into the business from its normal operations — selling products, providing services, that kind of thing Turns out it matters..

Common examples:

• Sales revenue
• Service revenue
• Interest income
• Rental income
• Commission income
• Subscription revenue

Every time your business earns something, it lands here. At the end of the period, the balance gets closed out to retained earnings (or, more precisely, to an income summary account as an intermediate step).

Expense Accounts

If revenue is money in, expenses are money out — the costs of actually running the business. And there are a lot of them. Most charts of accounts have more expense lines than anything else, because life is full of stuff you have to pay for.

Common examples:

• Cost of goods sold (COGS)
• Salaries and wages expense
• Rent expense
• Utilities expense
• Office supplies expense
• Advertising and marketing expense
• Insurance expense
• Depreciation expense
• Repairs and maintenance expense
• Travel expense
• Professional fees (legal, accounting, consulting)
• Bank fees
• Meals and entertainment expense
• Shipping and delivery expense
• Bad debt expense

These all close out at the end of the period, just like revenue does. Their balances are essentially subtracted from revenue to figure out net income.

Gain Accounts

Gains are a little different from revenue. They come from one-off or peripheral activities — not the main thing your business does day to day. In practice, selling a piece of equipment for more than its book value? That's a gain.

Examples:

• Gain on sale of equipment
• Gain on sale of investments
• Gain from lawsuit settlement
• Gain on debt forgiveness

You might be thinking, "Wait, isn't that just income?" Technically yes, but accountants separate gains from revenue because they don't reflect normal operations. Investors and managers want to see them as a separate line so they can tell what's recurring versus what's a fluke Turns out it matters..

Loss Accounts

Same idea, but in the other direction. Losses happen when something goes wrong, or when you sell an asset for less than it's worth on the books.

Examples:

• Loss on sale of equipment
• Loss on sale of investments
• Loss from lawsuit
• Loss from theft or write-off
• Impairment loss

And yes, just like gains, losses close out at period-end and feed into your net income calculation.

Income Summary Account

This one's a bit of a special case. Consider this: it acts like a temporary holding tank. The income summary account is a temporary account that's only used during the closing process. You move all the revenue and gain balances into it, then subtract all the expenses and losses, and the final number — your net income or net loss — gets transferred to retained earnings That alone is useful..

Real talk — this step gets skipped all the time.

You won't see it on financial statements. Plus, it's purely a behind-the-scenes account that helps accountants keep the closing entries clean and organized. But it absolutely belongs on any list of temporary accounts, because it's temporary by design.

Withdrawals or Dividends Account (for Sole Proprietorships and Corporations)

If you're a sole proprietor or partnership, owner withdrawals — the money you take out of the business for personal use — sit in a temporary account called drawings or withdrawals. It gets closed directly to the owner's equity account at year-end (not to retained earnings, since you're not a corporation) Which is the point..

For corporations, the equivalent is dividends declared. Same idea: money paid out to owners, sitting in a temporary account that gets closed out at the end of the period Less friction, more output..

Both are technically reductions of equity for the period, but they live as temporary accounts during the year Small thing, real impact..

How Closing Temporary Accounts Actually Works

Here's the gist of what happens at the end of an accounting period.

Step one: revenues and gains are debited, and the income summary is credited. This zeros out the revenue accounts.

Step two: expenses and losses are credited, and the income summary is debited. This zeros out the expense accounts.

Step three: the income summary now holds the net income (or net loss). That balance gets moved to retained earnings.

Step four: any withdrawals or dividends get closed directly to the appropriate equity account It's one of those things that adds up..

And that's it. This is what your accountant or bookkeeper means when they say "we're closing the books.All temporary accounts are back to zero. " It's not a metaphor. Next period starts clean. They're literally zeroing out these accounts Small thing, real impact..

Common Mistakes People Make With Temporary Accounts

Honestly, this is where things go sideways for a lot of small business owners Small thing, real impact..

Mistake one: treating them like permanent accounts. People see a balance in their revenue account mid-year and assume it represents a long-term figure. It doesn't. It's just for the current period. If you don't close it, the next period's numbers will be misleading.

Mistake two: skipping the closing process entirely. Some folks figure, "Why bother? I know what I made." Sure, maybe. But skipping closes makes your financial reports nearly useless, and it'll create real headaches if you ever face an audit, try to sell the business, or apply for a loan.

Mistake three: confusing withdrawals with expenses. Owner draws are not a business expense. They don't reduce your taxable income. Putting them in an expense account is one of the most common errors on small business books Easy to understand, harder to ignore..

Mistake four: forgetting depreciation expense. A lot of people skip this because no cash is leaving the business. But depreciation is still a real expense, and it has to sit in a temporary expense account to be properly accounted for at year

-end Simple, but easy to overlook..

Temporary Accounts vs. Permanent Accounts at a Glance

Why This Matters for Decision-Making

If you're a business owner trying to figure out whether your operation is actually profitable, you need accurate temporary account tracking. Without it, you're flying blind.

Think of it this way: if your revenue account still has last year's numbers rolled into it, and you compare it to this year's expenses, you have no idea what you actually earned this period. You might think you're profitable when you're not, or vice versa. Either scenario leads to bad decisions — over-investing, under-investing, mispricing products, or missing cash flow problems until it's too late.

Investors and lenders understand this. So that's why clean, closed-out temporary accounts are often one of the first things they look for when reviewing your financials. Messy books signal either incompetence or dishonesty, and either one will tank a deal Surprisingly effective..

The Role of Accounting Software

Most modern accounting software — QuickBooks, Xero, FreshBooks, Wave — handles the closing process automatically or with minimal effort on your part. You set the period, hit "close," and the system zeros out the appropriate accounts and posts the balances to retained earnings or owner's equity.

That said, don't let the software lull you into forgetting the concept. If you understand why your temporary accounts get closed, you'll catch errors the software might miss, make better decisions about cash vs. accrual timing, and have a much clearer picture of how your business is actually performing.

A Simple Recap

Temporary accounts exist to track a single period's financial activity. Practically speaking, they start at zero, collect revenues and expenses over the course of the period, get closed to retained earnings or owner's equity at year-end, and start fresh the next period. Permanent accounts — your assets, liabilities, and equity — never close and just carry their balances forward indefinitely.

Counterintuitive, but true.

Get this distinction right, and everything else in accounting starts to click. Mess it up, and your books become a tangled mess that nobody — including you — can make sense of.

Bottom line: temporary accounts are the scoreboard for each accounting period. Close them properly, and you always know exactly where you stand.