What is Permanent Account?
A permanent account (real account) is a balance sheet account that retains its balance from one accounting period to the next, including assets, liabilities, and equity.
Definition
A permanent account, also known as a real account, is a general ledger account whose balance is carried forward from one accounting period to the next and is reported on the balance sheet. Unlike temporary accounts, permanent accounts are not closed at the end of the accounting period. The three categories of permanent accounts are all asset accounts (cash, accounts receivable, equipment, land, buildings), all liability accounts (accounts payable, notes payable, mortgages payable), and all equity accounts (common stock, retained earnings, owner's capital account).
Examples of Permanent Accounts
Asset permanent accounts include Cash, Accounts Receivable (money owed to you by clients), Prepaid Expenses, Equipment, Furniture, Vehicles, and Buildings. Liability permanent accounts include Accounts Payable (money you owe to suppliers), Notes Payable, Mortgages Payable, Salaries Payable, and Taxes Payable. Equity permanent accounts include Common Stock (for corporations), Retained Earnings, and the Owner's Capital account (for sole proprietorships). Each of these accounts will appear on your balance sheet with a balance that represents the cumulative position as of the report date.
Permanent vs. Temporary Accounts at Year-End
At the end of an accounting period, the closing process separates temporary from permanent accounts. Temporary accounts (all revenue, expense, gains, losses, and withdrawals) are closed to zero and their net amount is transferred to the appropriate permanent equity account. Permanent accounts are left untouched during closing entries — their balances simply carry forward as the opening balances of the next period. For example, your Cash account at December 31 ($45,000) automatically becomes the January 1 opening balance for the next accounting period.
Why Permanent Accounts Are Important
Permanent accounts are the backbone of the balance sheet and provide the complete historical record of a business's financial position. Because asset accounts like Equipment are never closed, you can always see both the original purchase price and the accumulated depreciation, which together give you the net book value. Liability accounts preserve the full record of debts owed. Equity accounts show the cumulative impact of all profits earned and losses incurred since the business began operating. Without permanent accounts, preparing accurate multi-period financial statements would be impossible.
Permanent Accounts for Freelancers
As a freelancer, your permanent accounts track your business's ongoing financial position. Your Cash account shows how much money you have available right now. Accounts Receivable shows what clients owe you for outstanding invoices. Accounts Payable shows what you owe suppliers. Your Owner's Capital account shows your equity stake in the business — it grows when you make a profit and shrinks when you take draws. These are the accounts that carry forward year after year, building a complete picture of your business's financial history. Eonebill automatically updates your Accounts Receivable balance each time you send an invoice or receive a payment.