Revenue and expense accounts are considered temporary accounts because they
Understand the Problem
The question is asking for the reason why revenue and expense accounts are classified as temporary accounts, indicating a need for an explanation of their nature and lifecycle in accounting.
Answer
Revenue and expense accounts are temporary because they are closed and reset to zero each accounting period.
Revenue and expense accounts are considered temporary accounts because they only reflect activity for a given accounting period, then they are closed and reset to zero.
Answer for screen readers
Revenue and expense accounts are considered temporary accounts because they only reflect activity for a given accounting period, then they are closed and reset to zero.
More Information
Temporary accounts like revenue and expenses are used to track financial performance over specific periods. At the end of each period, these accounts are closed and their balances transferred to permanent accounts, preparing them for the next period's transactions.
Tips
A common mistake is not closing these accounts properly, which can lead to incorrect financial recordings for the new period.
Sources
- Financial statements - Flashcards - quizlet.com
- Temporary vs Permanent Accounts - highradius.com
- Temporary Account - Definition, vs Permanent, Example - corporatefinanceinstitute.com
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