Real Accounts vs. Nominal Accounts: What's the Difference?
Edited by Aimie Carlson || By Harlon Moss || Published on January 9, 2024
Real accounts represent tangible or intangible assets and liabilities, carrying balances over years, while nominal accounts track revenue, expenses, and income, closing annually.
Key Differences
Real accounts pertain to assets, liabilities, and equity of a business, reflecting permanent financial status. Nominal accounts, however, relate to income, expenses, losses, and gains, representing temporary transactions during an accounting period.
Balances in real accounts are carried forward to subsequent accounting years, representing continuous existence. In contrast, nominal accounts are reset to zero at the end of each fiscal year, following the closure of accounts.
Real accounts include tangible assets like machinery and intangible assets like patents. Nominal accounts, on the other hand, include temporary accounts like salaries expense or sales revenue.
The purpose of real accounts is to show the ongoing financial position of a company. Nominal accounts, however, aim to reflect the financial performance of a company over a specific period.
Examples of real accounts include "Building account" and "Investments account," while nominal accounts encompass "Rent expense" and "Dividend income."
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Comparison Chart
Nature
Permanent
Temporary
Types of Accounts
Assets, liabilities, and equity
Revenue, expenses, gains, and losses
Balance Carrying
Carried forward to next fiscal year
Closed at the end of the fiscal year
Purpose
Reflect financial status
Show financial performance
Examples
Buildings, machinery, patents
Sales revenue, rent expenses
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Real Accounts and Nominal Accounts Definitions
Real Accounts
Accounts for intangible assets and liabilities.
Goodwill is recorded in a real account reflecting intangible assets.
Nominal Accounts
Temporary accounts closed annually.
The advertising expense, a nominal account, is closed at the fiscal year-end.
Real Accounts
Reflect ongoing financial status of assets and equity.
Equity accounts are real accounts showing the owners' stake in the business.
Nominal Accounts
Accounts for recording expenses and losses.
The salary expense is a nominal account reflecting staff payments.
Real Accounts
Include accounts for fixed assets.
The building account, a real account, records the value of the company's premises.
Nominal Accounts
Accounts tracking revenue and gains.
Sales revenue is recorded in a nominal account showing income from sales.
Real Accounts
Accounts representing tangible assets.
The land account is a real account showing the company's property value.
Nominal Accounts
Show financial performance over a fiscal period.
The interest income is a nominal account indicating earnings from investments.
Real Accounts
Permanent accounts carrying balances over years.
The machinery account, a real account, carries its value to the next year.
Nominal Accounts
Include accounts for operational expenses.
The utility expenses, a nominal account, record monthly utility payments.
FAQs
What are nominal accounts?
Accounts that track revenue, expenses, and financial results of a period.
Do real accounts close annually?
No, their balances are carried over to the next fiscal year.
Are nominal accounts reset each year?
Yes, they are closed and reset at the end of each fiscal year.
Do real accounts include equity accounts?
Yes, equity accounts are a type of real account.
What are real accounts?
Accounts representing tangible and intangible assets and liabilities.
What types of assets are in real accounts?
Both tangible assets like buildings and intangible like patents.
What is included in nominal accounts?
Revenue, expenses, gains, and losses of a particular period.
Can liabilities be part of real accounts?
Yes, liabilities are also recorded in real accounts.
Is inventory a real account?
Yes, inventory is a real account under current assets.
Are salaries expense a nominal account?
Yes, salaries expense is a typical nominal account.
How do nominal accounts affect tax calculations?
They provide the necessary details for income and expense calculations.
How do real accounts impact balance sheets?
They provide a snapshot of the company's long-term financial status.
Do nominal accounts appear on income statements?
Yes, they reflect the financial performance for the period.
How do nominal accounts aid in budgeting?
They help track and analyze expenses and revenues for planning.
Does a rent expense account reset every year?
Yes, as a nominal account, it resets at the fiscal year's end.
Can nominal accounts indicate business trends?
Yes, they can show trends in revenue and expenses.
Are cash accounts real or nominal?
Cash accounts are real accounts.
Are real accounts used in financial analysis?
Yes, for long-term financial health and asset valuation.
How do nominal accounts support financial reporting?
They provide detailed insights into the company's annual financial activities.
Do real accounts change frequently?
No, they represent more stable, long-term aspects of finance.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
