Question

P 2-8 The following are selected accounts of Laura Gibson Company on December 31: Permanent (P) or Normal Balance (Dr.) Temporary (T) or (Cr.) Cash Accounts Receivable Equipment Accounts Payable Common Stock Sales Purchases Rent Expense Utility Expense Selling Expense Required In the space provided: 1. Indicate if the account is a permanent (P) or temporary (T) account. 2. Indicate the normal balance in terms of debit (Dr.) or credit (Cr.).

Answer 1

Temporary accounts, whose balances are not carried over from one accounting period to another, but are closed, or transferred, to permanent accounts at the end of an accounting period. Purpose of temporary accounts is to show how any revenues, expenses, or withdrawals have affected the owner's equity. Acounts that fall into the temporary account classification are revenue, expense, and drawing accounts.

Permanent accounts, which are also called real accounts, whose balances are carried over from one period to another. These are the accounts that are seen on the company's balance sheet and represent the actual worth of the entity at a specific point in time. Even though the balances in these accounts change from daily transactions, these account balances are never closed out nor transferred to the owner's capital account.

The permanent accounts are classified as asset, liability, and owner's equity accounts, except drawing account.

ACCOUNT	ACCOUNT TYPE	DEBIT OR CREDIT
Cash	Permanent	DEBIT
Accounts receivable	Permanent	DEBIT
Equipment	Permanent	DEBIT
Accounts payable	Permanent	CREDIT
Common stock	Permanent	CREDIT
Sales	Temporary	CREDIT
Purchases	Temporary	DEBIT
Rent expense	Temporary	DEBIT
Utility expense	Temporary	DEBIT
Selling expense	Temporary	DEBIT