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What are Temporary Accounts?
Temporary accounts are accounts that are closed at the end of each accounting period, including revenue, expense, and dividend accounts. They capture activity for a period and are zeroed out after closing entries. Automated closing processes reset temporary accounts and transfer balances to permanent accounts.
Temporary vs. Permanent Accounts
Temporary accounts such as revenue and expense accounts are closed each period; permanent accounts such as assets and liabilities carry forward. This distinction is important for period-end close and financial reporting. Automated accounting systems maintain proper classification and generate appropriate closing entries.