Which accounts are permanent (real) accounts?

• A. Assets, Liabilities, and Equity
• B. Revenues and Expenses
• C. Withdrawals
• D. Gains and Losses

Answer: (A)

Permanent accounts are those balance sheet accounts whose ending balances carry forward into the next period. They reflect the ongoing financial position, not just a single period’s performance. That’s why assets, liabilities, and equity fit this category: assets like cash or inventory remain from one period to the next, liabilities like notes payable persist, and equity accounts such as contributed capital and retained earnings carry forward the owners’ stake in the business.

Revenues and expenses, by contrast, are temporary because they summarize a specific period’s performance. After closing entries, their balances reset to zero and their net effect is moved into equity, showing how much the period earned or spent. Withdrawals (owner’s drawings) are treated similarly in that they reduce equity for the period and are closed to the capital account, so they don’t carry a separate balance into the next period. Gains and losses follow the same pattern, appearing on the income statement for the period and then closing to retained earnings, rather than remaining as permanent balances.