Real accounts, also known as permanent accounts, are general ledger accounts that retain their balances from one accounting period to the next. Unlike temporary accounts, they do not close at the end of the accounting year. Instead, the ending balance of a real account becomes the beginning balance for the subsequent period.
Key Characteristics of Real Accounts
- Do Not Close: According to provided reference, a real account "does not close at the end of a period or at the end of the accounting year".
- Carry Over Balances: Balances are carried over into the next accounting period.
- Permanent Nature: These accounts represent the ongoing financial position of a business.
Types of Real Accounts
Real accounts are categorized under the balance sheet and include the following:
-
Asset Accounts: Represent what a company owns, such as cash, accounts receivable, inventory, and equipment.
- Examples: Cash, Accounts Receivable, Inventory, Land, Buildings, Equipment
-
Liability Accounts: Represent what a company owes to others, such as accounts payable, salaries payable, and loans.
- Examples: Accounts Payable, Salaries Payable, Loans Payable, Unearned Revenue
-
Equity Accounts: Represent the owners' stake in the company, such as common stock and retained earnings.
- Examples: Common Stock, Retained Earnings, Paid-in Capital
Real Accounts vs. Nominal (Temporary) Accounts
| Feature | Real Accounts (Permanent) | Nominal Accounts (Temporary) |
|---|---|---|
| Closing | Do not close. | Close at the end of the period. |
| Balance Carryover | Yes | No |
| Financial Statement | Balance Sheet | Income Statement |
| Examples | Assets, Liabilities, Equity | Revenues, Expenses, Gains, Losses |
Importance of Real Accounts
- Financial Position: Real accounts provide a continuous view of a company's assets, liabilities, and equity.
- Decision Making: The ongoing balances help stakeholders make informed decisions.
- Long-Term Analysis: Analyzing trends in real account balances over time can reveal significant insights into a company's financial health and performance.
