Real Accounts vs. Nominal Accounts: Definition, Differences & Examples Video

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  • 0:01 Classification
  • 1:19 Real Accounts
  • 2:20 Nominal Accounts
  • 3:16 The Difference
  • 3:48 Lesson Summary
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Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

In accounting, there is a classification for everything. Transactions, financial statements, and accounts are broken down into classifications. In this lesson, we will be discussing two classifications of accounts - real accounts and nominal accounts.

Classification

Do you remember studying science in school? I certainly do. One of the things that I remember most is doing classification on different objects. It amazed me that a human wasn't just a human. Broken down in a scientific way, a human's classification looks like this:

Domain: Eukaryota

Kingdom: Animalia

Phylum: Chordata

Class: Mammalia

Order: Primates

Family: Hominidae

Genus: Homo

Species: Sapiens

That's an awful lot of words to use to categorize just one person, isn't it? This multiple-level classification reminds me of accounts in accounting. You see, an account is not simply an account. An account can be further broken down into different classifications just like a human is. It may look something like this:

Account

Asset

Liability

Owner's Equity

Real

Nominal

Permanent

Temporary

It doesn't matter what you call it, an account is still an account, just like a human is still a human. In this lesson, we're going to take a look at two of the ways that accounts can be classified: real or nominal.

Real Accounts

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A real account is an account that will always be a part of a company's books once opened. It's there from the very first business day to the very last business day. Most of the real accounts show up on a company's balance sheet. The balance sheet is the financial statement that lists all the accounts that a company has and their balances.

However, just because an account doesn't show up on the balance sheet doesn't mean that it's not a real account. If an account has a zero balance, it wouldn't need to be reported on the balance sheet. It's still a part of the chart of accounts, which is the official, informal list of all of a company's accounts, and available to be used if needed.

It's the real accounts that show the assets, liabilities and owner's equity in a company. I bet you'd like to have a few examples of real accounts, wouldn't you? I'd be glad to oblige. Cash, accounts receivable, accounts payable, notes payable and owner's equity are all real accounts that are found on the balance sheet.

Nominal Accounts

A nominal account is an account that is used during an accounting period to summarize the cash coming into the company and being paid out of the company for that time period. Nominal accounts are reported on the income statement, which is the financial statement that tells how much money a company made or lost in a given time period. In a nutshell, nominal accounts are any revenue and expense accounts that a company has.

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