which is not a temporary account

which is not a temporary account

A non-income statement account that is closed at the end of an accounting period is the Drawings Account but it is not considered as a temporary account.

When a temporary account is closed, it will open with a zero balance in the next accounting period.

The objective behind this is to ensure that the profitability of the company is only computed for the current accounting period.

For example, if a company reports a net profit for three consecutive years of $20,000, $35,000 and $30,000 and does not close the revenue account each year, they will report a total revenue of $90,000 which is misleading because it covers for three periods.