Question 4Q - Intermediate Accounting (Kieso)

Question

Why are revenue and expense accounts called temporary or nominal accounts?

Step-by-Step Solution

Answer

Revenue and expense accounts are temporary or nominal accounts; revenue and expense account also begin every accounting year with no balance. When the year ends, the balance on the temporary account is shifted to another account. Moreover, both the accounts are income statement accounts.

Meaning of accounts

An account is a systematic record of transactions prepared by a company for the purpose of maintaining business records in its books of accounts. It helps to make business data available in depth.

Reason for calling revenue and expense temporary or nominal accounts

Revenue and expenses accounts are also called temporary or nominal accounts as at every accounting cycle; they are closed out to income summary in the closing process. Their balances become zero at the end of the financial period.