Accounting Fundamentals Certification (AFC) Practice Test

Accounts that have their balances carried forward from one accounting period to the next are referred to as permanent accounts. Permanent accounts, also known as real accounts, include assets, liabilities, and equity accounts. These accounts maintain their balances throughout the life of the business, recording the accumulated financial position over time.

In contrast, temporary accounts are closed at the end of an accounting period and their balances are transferred to permanent accounts to reflect the revenues and expenses for that specific period. Adjusting accounts relate to the necessary adjustments made during the closing process, while nominal accounts typically refer to the same category as temporary accounts and thus do not carry forward their balances. Understanding the distinction between these types of accounts is crucial for accurately reflecting a company’s financial position and performance over time.