Temporary accounts are established to facilitate efficient accumulation of
data for statements. Temporary accounts are established for withdrawals,
each revenue, and each expense. Temporary accounts are assigned
balances based on how they affect equity.
Temporary Accounts Effect on equity? E or E
Owner, Withdrawals* E = Dr
Revenues E = Cr
Expenses E = Dr
Transactions during the period always increase the balances of these
temporary accounts since the transaction represent additional withdrawals,
revenues, and expenses. We will later learn how to move these amounts
back to the real account they affect → CAPITAL. At the end of the
accounting period, transferring withdrawals, revenues, and expenses back to
capital is the main use for the decrease side of the temporary accounts.
*The “Owner’s Name, Withdrawals” is the account title and the
classification of account is a contra-equity.