Temporary accounts are used to compile transactions that impact the profit or loss of a business during a year. Examples of temporary accounts are:
- Revenue accounts
- Expense accounts
- Gain and loss accounts
- Income summary account
The balances in these accounts should increase over the course of an accounting year; they should rarely decrease. The balances in temporary accounts are used to compile the income statement.
At the end of an accounting year, the balances in temporary accounts are shifted to the retained earnings account, sometimes by way of the income summary account.
The other main type of account is the permanent account, in which balances are retained on an ongoing basis. These accounts are aggregated into the balance sheet, and include transactions related to assets, liabilities, and equity.
A temporary account is also known as a nominal account.