From the course: Advanced Bookkeeping Techniques
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The difference between a real and a nominal account
From the course: Advanced Bookkeeping Techniques
The difference between a real and a nominal account
- The accounting records contain a separate file or page for each individual item, such as cash, accounts payable, sales revenue, and wage expense. These separate pages are called accounts. Everything that has ever happened with cash, for example, is summarized in the cash account. These accounts are separated into two categories, real accounts and nominal accounts. Real accounts, such as cash and accounts payable, have a continuing existence from one period to the next. The ending amount of cash on December 31st of year one is carried forward as the beginning amount of cash on January 1st of year two. The real accounts include all assets, all liabilities, and the two equity accounts, paid in capital and retained earnings. You notice that the real accounts are all of those accounts reported in the balance sheet. Nominal accounts, such as sales revenue and wage expense, are reset to zero at the end of each year. The sales…
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