Below explained what accounts are known as temporary or nominal account:
| The increase in capital resulting from revenue is TEMPORARY, since capital will be reduced by expenses in the same period. These accounts are closed out at the end of the accounting period and the net balance ( for example, the excess of revenue over expenses for the period) is then transferred to the capital account.
WHEREAS:- The permanent or real account balances like assets, liabilities and capital are not closed out at the end of the accounting period. For example, fixed asset or inventory balance at the end one period becomes the beginning balance in the following period. |