The approach to managing accounts temporarily until they are transferred to the owner's capital account is to zero them out after the accounting period ends. This process is known as closing the accounts, specifically the temporary accounts, which typically include revenues, expenses, gains, and losses.
At the end of an accounting period, companies must prepare their financial statements, and part of this process involves resetting the balances of these temporary accounts to zero. This ensures that each new accounting period starts fresh, capturing only the financial activity relevant to that specific period. The totals from the temporary accounts are then summarized and transferred to the owner's capital account or retained earnings, reflecting the performance of the business over the past period. This practice maintains accurate financial tracking and aligns with standard accounting principles.
In this way, the owner's capital account will reflect the cumulative impact of the business's activities over time, while the temporary accounts give a clear picture of performance for each individual period. Therefore, managing these accounts by zeroing them out at the end of a period is essential for proper financial accounting practices.