What Are Nominal Accounts?


Quick Answer

Education Portal notes that nominal accounts are those used during an accounting period to summarize the cash coming into and being paid out of the company for that period. They are accounts that represent expenses, losses, incomes and gains, according to Future Accountant.

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Full Answer

BusinessDictionary.com explains that nominal accounts are reports on the income statement, which is the financial statement that indicates how much money a company makes or loses in a given time period. They start with a zero balance at the beginning of every accounting period, accumulate balances, and return to zero at the end of the year by means of closing the entries. The entire purpose of nominal accounts is to track the revenues and expenses for a company so that net profit or net loss for a specific period can be counted. Examples of revenues and expenses include: service revenue, sales revenue, wages expense, utilities expense, supplies expense and interest expense.

Nominal accounts are also called temporary accounts, in contrast to the balance sheets, which include asset, liability and owner's equity accounts, also referred to as real or permanent accounts. Education Portal states that the difference lies in the fact that real accounts have running balances, meaning that they continually add up, while balances in nominal accounts zero out after each accounting period ends.

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