Question

Discuss the difference between "nominal" and "real" accounts. Why are they so called? What type of information is contained in nominal accounts, and what type in real accounts? Which financial statement contains the information from nominal accounts, and which contains the information from real accounts?

250 words or more

Answer 1

Ans.

Difference between Real and nominal accounts

Real Accounts	Nominal Accounts
1. These accounts related to tangible or intangible assets of firm	1. These accounts relates to expenses, losses, gain , revenue
2. Example of tangible assets- Land , building, investment, stock, cash in hand	2. Example of expenses- salary, purchase, interest paid
3. Example of intangible asset- Goodwill, Patent, Trademark	Example of Gain , Revenue – Sales, Interest received account
4. Result of real accounts transferred to the balance sheet	4. Result of nominal accounts transferred to profit and loss account
5. Golden rule – Debit what comes in , credit what goes out	5. Golden rule- Debit all expenses and losses, credit all income and gain

Types of information contained in nominal and real accounts

Real Accounts – All the expenses incurred to obtain tangible and intangible assets; they also referred as permanent account, balance of these account are transferred to next accounting year, their balance transferred to balance sheet.

Nominal Accounts - These are nominal ledger account, which are closed in every accounting year, these are also referred as temporary account, in next accounting year there balance start as zero balance, their balance transferred to profit and loss account.

Financial statement that includes information about these account-

Nominal Account - Income statement or profit and loss account contains the information or balance of real accounts

Real Account - Balance sheet contains information regarding these account , balance regarding real account are transferred during lifetime of the firm, so they transferred to balance sheet of the firm.