What is the purpose of temporary accounts?

The purpose of temporary accounts is to collect data for a specific accounting period before closing. Temporary accounts include revenue, expenses, and dividends, which are used to summarize financial transactions during an accounting period. At the end of the period, these accounts are closed out, and their balances are transferred to permanent accounts, typically retained earnings. This process helps ensure that revenues and expenses are matched to the correct accounting period, allowing for an accurate assessment of a company's performance over that timeframe. By resetting these accounts, companies can start fresh in the new accounting period, making it easier to track financial performance in subsequent periods.

Other options refer to aspects of accounting but do not define the role of temporary accounts. For instance, showing financial position at a point in time pertains to permanent accounts, while accumulating depreciation relates to asset management. Holding cash reserves indicates liquidity management rather than the specific function of temporary accounts.