Explain the concept of temporary accounts and their use
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"I believe that marketable securities, accounts receivable (net of allowance), deferred income taxes, income taxes receivable, prepaid revenue shares, expenses and other assets are temporary accounts"
Do you agree that the above mentioned accounts are temporary accounts? Why or why not?
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Solution Summary
In a 327 word solution, the concept of temporary accounts in the strict accounting terminology is explained together with detailed comments on the particular accounts mentioned. The final paragraphs discuss the term temporary as it might be construed outside of accounting terminology.
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The definition of a temporary account is one which is closed periodically to retained earnings. A temporary account is an "...account that does not appear on the balance sheet; also called Nominal Account. Revenue and expense accounts, along with income distribution accounts (such as dividend) are temporary accounts. The balances in all temporary accounts are transferred to the capital or the retained earnings account, leaving the temporary accounts with zero balances. This procedure, called closing, is necessary to determine a ...
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