The full \"accounting cycle\" which culminates in closing the books and producing financial statements. Discuss the differences between Permanent \"real\" accounts and Temporary ¨nominal¨ accounts: PDF

Preview

Summary

What type of information is contained in nominal accounts, and what type of information is contained in real accounts?

· Which financial statement contains the information from nominal accounts and which contains the information from real accounts?

· Provide a...

Description

Permanent (real) accounts are accounts that transfer balances to the next period and include balance sheet accounts, such as assets, liabilities, and stockholders’ equity (Franklin et al. 2020). Temporary (nominal) accounts, on the other hand are accounts that are closed at the end of each accounting period, and include income statement, dividends, and income summary accounts (Franklin et al. 2020). According to Franklin et al (2020) temporary accounts keep their balances during the current accounting period and are set back to zero when the period ends. As alluded before the Real accounts will not set back their balances to zero, rather the balances are transferred to the next accounting period. Nominal account debits expenses and losses whereas real account debits whatever comes into the business. Also nominal accounts are prepared to determine the profitability of the business (Terms Compared Staff, 2019), this means that the type of information contained in nominal accounts are for determining the profit of the business whereas real accounts are prepared to determine the financial position meaning we will find information about the assets, liabilities and equity of the business. Also we can find information about the expenses and losses that are debited in nominal accounts; the real account however debits everything that comes into the business. The Income Statement is the financial statement that contains the information from the nominal accounts whilst the Balance Sheet contains information from the real accounts. Examples of nominal accounts include Revenue, salaries and wages, gains or losses on disposal of asset and examples of real accounts include cash account, account receivables, account payables and bank accounts. In conclusion, both these accounts are equally vital in the process of accounting and have their own respective purposes. In order to be able to achieve accurate and meaningful financial statements (Income Statement and Balance Sheet in this case) as per the accounting governing boards such as IFRS, it is equally important to understand these types of accounts. Word Count: 325 References Franklin, M. Cooper, D and Graybeal, P (2020) Principles of Accounting, Volume 1: Financial Accounting, retrieved from https://openstax.org/details/books/principles-financial-accounting Terms Compared Staff (2019 July, 25): “Difference between real and nominal accounts”...