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A permanent account carries its ending balance into the next period. Cash does not disappear at year-end, and an unpaid bill does not stop being a liability because the calendar changes.
Which accounts carry forward?
Asset, liability, and permanent equity accounts carry forward. Examples include Cash, Accounts Receivable, Equipment, Accumulated Depreciation, Accounts Payable, Common Stock, and Retained Earnings.
Accumulated Depreciation is a contra-asset account: its credit balance reduces the amount reported for the related asset. It carries forward because it records depreciation accumulated across periods. Depreciation Expense, which measures the current period's allocation, closes.
Permanent does not mean unchanging
Collection can reduce Accounts Receivable to zero. Payment can settle Accounts Payable. Those changes follow transactions, not a rule that every balance resets at year-end. A permanent account may have a zero balance.
Retained Earnings changes when the period's income and dividends are transferred into it. It remains permanent because its resulting balance carries forward rather than being reset for the new period.
Check the next period's opening balances
For the same company and accounts, each post-closing balance becomes the next period's opening balance before new activity. Investigate an unexplained difference instead of treating it as a new transaction.
A post-closing trial balance checks the remaining debit and credit totals. Equal totals do not prove that every temporary account was closed or that every permanent balance is correct. The closing example shows the separate account-list and equity checks.
Put the concept to work
Understand this concept
- Explain why asset, liability, and continuing equity account balances carry forward while temporary period accounts reset.
Apply this concept
- Classify basic permanent accounts and reconcile their post-closing balances to the next period's opening balances.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Account — Understand
To understand this concept: Required. A permanent account carries its accumulated position and history across reporting periods.
- Asset — Understand
To understand this concept: Required. Assets remaining at period end continue as resources or rights into the next period.
- Equity — Understand
To understand this concept: Required. Continuing contributed and accumulated equity balances do not reset merely because a reporting period ends.
Show 3 more prerequisites
- Liability — Understand
To understand this concept: Required. Unsettled obligations remain claims at the next period's opening.
- Permanent account — Understand
To apply this concept: Required. Carryforward requires distinguishing continuing positions from period-only activity.
- Trial balance — Analyze
To apply this concept: Required. The post-closing trial balance checks the remaining debit and credit balances after temporary accounts are zeroed.
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Related concepts
Show 3 more related concepts
Use this idea next
- Closing entry — Understand
Required level here: understand. Required. The equity destination and other post-closing balances carry into the next period.
- Permanent account — Apply
Required level here: understand. Required. Carryforward requires distinguishing continuing positions from period-only activity.
- Post-closing trial balance — Apply
Required level here: apply. Required. Every line is a permanent account balance.
Show 1 more next steps
- Post-closing trial balance — Understand
Required level here: understand. Required. The surviving accounts are exactly the permanent ones.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.