Future Business Leaders of America (FBLA) Accounting Practice Test

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

1. Temporary accounts

2. Permanent accounts

3. Expense accounts

4. Revenue accounts

The correct answer is: Permanent accounts

Permanent accounts are used to accumulate information from one fiscal period to the next because they are intended to carry their balances forward to future accounting periods. These accounts typically include assets, liabilities, and equity accounts, and they reflect the ongoing financial position of a business over time. For example, the end-of-period balance in cash, inventory, or accounts payable will appear in the same state as the beginning balance of the next period, allowing for a continuous record-keeping system. In contrast, temporary accounts, such as revenue, expense, and dividend accounts, are reset to zero at the end of each fiscal period. Their balances are closed out and transferred to permanent accounts (like Retained Earnings) as part of the closing process in accounting. This ensures that each fiscal period starts with a clean slate for measuring performance. Understanding this distinction is crucial as it highlights how businesses track and report their financial status over time, ensuring that stakeholders have accurate information regarding the company's ongoing financial activities.