State BPA Fundamental Accounting Practice Exam

Which of the following is considered a temporary account?

1. Retained earnings

2. Unearned revenue

3. Sales revenue

4. Equipment

The correct answer is: Sales revenue

Temporary accounts, also known as nominal accounts, are those that are reset to zero at the end of each accounting period. Their balances are closed out to permanent accounts, typically to track financial performance for a specific period. Among the choices provided, sales revenue is classified as a temporary account because it accumulates revenue earned during an accounting period and is then closed at the end of that period, transferring its balance to the retained earnings account in the equity section of the balance sheet. In contrast, retained earnings is a permanent account that reflects the cumulative amount of net income retained in the business over time. Unearned revenue, although it represents a liability, is also a permanent account because it tracks the amount received for services or goods yet to be delivered and does not reset at the end of an accounting period. Equipment is classified as a long-term asset and is also a permanent account, as it maintains its balance over time and is not subject to periodic closing. Therefore, sales revenue is indeed the correct answer as it exemplifies the characteristics of a temporary account.