Mixed Accounts
What are mixed accounts?

Definition

Mixed accounts pertain to accounts that have the features of both temporary and permanent accounts. Temporary accounts include income, expense, and withdrawal accounts. Permanent accounts pertain to asset, liability and capital accounts.

Examples of Mixed Accounts

While temporary accounts are measured from period to period and are closed at the end of the accounting period; and permanent accounts are measured cumulatively hence not closed, mixed accounts have the properties of both temporary and permanent accounts.

Temporary accounts are those that are presented in the income statement (revenues and expenses) and withdrawals in the case of sole proprietorships and partnerships. Permanent accounts are those reported in the balance sheet (assets, liabilities and capital).

A mixed account arises when an account includes a part that should be reported the income statement and a part to be reported in the balance sheet. This happens before preparing adjusting entries. Some common examples include:

Prepaid insurance to which a part has already expired but not yet recorded as expense; office supplies to which some has already been used but has not yet been been recorded as expense, and other prepaid expenses.
Some expenses (especially insurance expense, rent expense, and supplies expense) if the entire amount was initially recorded as expense but some were not utilized at the end of the period. The unused part should be part of assets, not expenses.
Unearned revenues if part of it has already been earned.
Some revenue accounts when advanced collection from clients or customers were recorded initially as revenue and a part of it were not yet earned (i.e. not delivered or performed) at the end of the accounting period.

Illustration

On October 1, 2021, ABC Company paid 1 year worth of insurance for $12,000. The accountant properly recorded the transaction as Prepaid Insurance for the total amount of $12,000. On December 31, the end of the accounting period, a part of the prepaid insurance has already expired, hence should be recorded as expense and removed from prepaid insurance. At this point, Prepaid Insurance is a mixed account and needs to be addressed by preparing an adjusting entry.

Accounting for Mixed Accounts

Adjusting entries need to be prepared at the end of the accounting period. Mixed accounts are split into purely temporary and purely permanent accounts after the preparation of adjusting entries.

In the example above, the $12,000 initially recorded as Prepaid Insurance should be split into: $3,000 Insurance Expense - the part that has already expired, and $9,000 to remain as Prepaid Insurance. It is done by recording Insurance Expense and reducing Prepaid Expense by $3,000. The adjusting entry would then be: debit: Insurance Expense for 3,000; and credit: Prepaid Insurance for 3,000. After preparing this entry, the 12,000 is now properly split to a temporary account (insurance expense) and a permanent account (prepaid insurance).