State BPA Fundamental Accounting Practice Exam

Which accounts are used to accumulate information from one period to the next?

1. Temporary Accounts

2. Permanent Accounts

3. Contra Accounts

4. Nominal Accounts

The correct answer is: Permanent Accounts

The correct answer is that permanent accounts are used to accumulate information from one period to the next. Permanent accounts, also known as real accounts, include assets, liabilities, and equity. These accounts maintain their balances over time and carry forward their ending balances into the next accounting period. Because they are not closed at the end of the fiscal year, the balances in permanent accounts reflect the ongoing financial position of a business. In contrast, temporary accounts, which involve revenues and expenses, are closed at the end of an accounting period and reset to zero. This means that they do not accumulate balances across periods. Nominal accounts is another term often associated with temporary accounts, emphasizing their nature of resetting annually. Contra accounts, on the other hand, are accounts that offset the balance of related accounts and do not serve the purpose of accumulating information over reporting periods. Therefore, permanent accounts play a crucial role in reflecting a business's long-term financial status across accounting periods.