Definition of Income Statement Accounts
Income statement accounts are used to sort and store transactions involving:
- Operating revenues
- Operating expenses
- Non-operating revenues and gains
- Non-operating expenses and losses
Large companies may have thousands of income statement accounts in order to budget and report revenues and expenses by divisions, product lines, departments, and so on.
Income statement accounts are also referred to as temporary accounts or nominal accounts because at the end of each accounting year their balances will be closed. This means that the balances in the income statement accounts will be combined and the net amount transferred to a balance sheet equity account. In the case of a corporation, the equity account is Retained Earnings. In the case of a sole proprietorship, the equity account is the owner's capital account. As a result, the income statement accounts will begin the next accounting year with zero balances.
Examples of Income Statement Accounts
A few of the many income statement accounts used in a business include Sales, Sales Returns and Allowances, Service Revenues, Cost of Goods Sold, Salaries Expense, Wages Expense, Fringe Benefits Expense, Rent Expense, Utilities Expense, Advertising Expense, Automobile Expense, Depreciation Expense, Interest Expense, Gain on Disposal of Truck, and many more.