What is Temporary and Permanent Accounts?
Temporary accounts are income statement and dividend accounts whose balances are reset to zero at the end of each accounting period by closing entries, while permanent accounts are balance sheet accounts whose balances carry forward into the next period.
How It Works
- Temporary: revenues, expenses, gains, losses, dividends declared.
- Permanent: assets, liabilities, equity (including retained earnings).
- Closing entries transfer net temporary balances to retained earnings.
- After closing, temporary accounts start the new period with a zero balance.
Saudi Context
Saudi accounting software like Qoyod automates the year-end closing process, posting closing entries on the last day of the fiscal year (typically 31 December for ZATCA-aligned filers). The resulting retained earnings balance flows to the audited financial statements submitted to ZATCA and the CMA.
Example
A Saudi company ends the year with revenues SAR 5,000,000, expenses SAR 3,800,000, and dividends declared SAR 200,000. Closing entries transfer net SAR 1,000,000 (5,000,000 – 3,800,000 – 200,000) to retained earnings, then reset all three to zero.