Permanent accounts and temporary accounts have different natures. Which of the following correctly describes them?

• A. Permanent accounts are reset to zero each period; temporary carry forward.
• B. Temporary accounts are assets, liabilities, and equity.
• C. Permanent accounts are assets, liabilities, and equity; temporary are revenues, expenses, and dividends.
• D. Both are reset to zero at period end.

Answer: (C)

In accounting, accounts are categorized as permanent (real) and temporary (nominal). Permanent accounts include assets, liabilities, and equity; their balances stay on the books from one period to the next. Temporary accounts include revenues, expenses, and dividends; these are closed at period end to zero them out and transfer their balances to retained earnings, so the new period starts fresh for these accounts. This is why describing permanent accounts as assets, liabilities, and equity and temporary accounts as revenues, expenses, and dividends is correct. The other statements either misidentify which accounts belong to permanent versus temporary or ignore the closing process that resets only the temporary accounts.