permanent accounts
/ PUR-muh-nuhnt uh-KOWNTS /
Some things about a business do not reset at year-end. The cash in the bank on 31 December is still there on 1 January; a loan you owe does not vanish because the calendar flipped; the owners' stake carries straight over. Permanent accounts are the accounts that track these enduring balances. Unlike the temporary accounts that measure a single period's activity, permanent accounts roll their balances forward, year after year, for as long as the business exists.
Permanent accounts are precisely the balance sheet accounts: assets, liabilities, and equity. Their ending balance in one period becomes the opening balance of the next, with nothing closed out. If a company ends December with 50,000 in Cash, 30,000 in Accounts Payable, and 100,000 in equity, those identical figures open January. They are sometimes called 'real' accounts because they represent real resources, obligations, and ownership that genuinely persist over time, rather than period-specific flows.
Permanent accounts matter because they embody the going-concern idea — a business that continues indefinitely needs a continuous record of what it owns and owes. They are also what remains after the closing process: once temporary accounts are zeroed, only permanent accounts carry non-zero balances, which is exactly what the post-closing trial balance verifies. A frequent mix-up is treating Retained Earnings as temporary; it is permanent — it is the equity account that accumulates every year's closed-out profits.
Equipment 80,000, Notes Payable 25,000, and Common Stock 50,000 close December and reopen January unchanged — no closing entry touches them. Only when the equipment is sold or the note repaid do these permanent balances move.
Balance sheet accounts carry their balances across the year-end without being closed.
Retained Earnings is a permanent account, even though it is fed by temporary ones. Each year's net income flows into it during closing, but Retained Earnings itself is never zeroed.