What is the Difference Between Nominal Account and Real Account?
🆚 Go to Comparative Table 🆚The main difference between nominal and real accounts lies in their purpose and the duration for which they maintain their balances.Here are the key differences between the two:
Nominal Accounts:
- These accounts relate to income, expenses, gains, and losses.
- They are temporary accounts, meaning they are closed at the end of each accounting period.
- Nominal accounts track revenue and expenses for a specific period.
- Examples of nominal accounts include sales revenue, cost of goods sold, rent expense, and interest expense.
Real Accounts:
- These accounts are associated with the balance sheet and are used to record assets, liabilities, and equity.
- Real accounts are permanent accounts, meaning they carry forward their ending balance into the following year.
- Real accounts track a company's assets, liabilities, and equity over its entire lifetime.
- Examples of real accounts include cash, accounts receivable, inventory, accounts payable, loans payable, and common stock.
In summary, nominal accounts are temporary and are used to record revenues, expenses, gains, and losses, while real accounts are permanent and are used to record assets, liabilities, and equity.
Comparative Table: Nominal Account vs Real Account
Here is a table summarizing the differences between nominal and real accounts:
| Feature | Nominal Accounts | Real Accounts |
|---|---|---|
| Also Known As | Temporary Accounts | Permanent Accounts |
| Purpose | Track revenue, expenses, gains, and losses for a specific period | Track a company's assets, liabilities, and equity over its entire lifetime |
| Income Statement | Associated with the income statement | Associated with the balance sheet |
| Examples | Product revenue, cost of goods sold, compensation expense, utilities expense | Accounts receivable, accounts payable, additional paid-in capital |
| Fiscal Year | Start with a zero balance at the beginning of each fiscal year | Carry forward their ending balance into the following year |
| Closing Process | Balances are flushed out at year-end, usually ending up in the retained earnings account | Retain their balances permanently |
Nominal accounts are used to record revenues, expenses, gains, and losses, while real accounts are used to record assets, liabilities, and equity. Nominal accounts are temporary and start with a zero balance at the beginning of each fiscal year, whereas real accounts are permanent and carry forward their ending balance into the following year.
- Nominal vs Real Exchange Rate
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- Capital Account vs Current Account
- Current Account vs Saving Account
- NRE Account vs NRO Account
- Bookkeeping vs Accounting
- T Account vs Ledger
- Cash Accounting vs Accrual Accounting
- Cash vs Accrual (Accounting)
- Ideal vs Real
- Double Entry System vs Double Account System
- Accounting vs Finance
- Financial Accounting vs Cost Accounting
- Accountancy vs Commerce
- Accounts Payable vs Accounts Receivable
- Accounting vs Auditing
- GDP Nominal vs GDP PPP
- Accounts Receivable vs Notes Receivable