Difference between Nominal and Real accounts in Financial Accounting

This video shows the difference between nominal and real accounts in financial accounting. Nominal accounts consist of revenues, expenses, and dividends. These accounts are also known as temporary accounts because they are only tracked for a single year, and then are zeroed out during the year-end closing process. This means that at the end of the fiscal year, the balances of these accounts are transferred to the real (aka permanent) account called Retained Earnings. Retained Earnings, like all balance sheet accounts (assets, liabilities, and stockholders' equity), is a permanent account. Real/permanent accounts include the effect of all transactions since the inception of the firm. The cash account, for example, is a permanent/real account that tracks the cumulative effect of all cash transactions since the firm was created. This is different from nominal/temporary accounts, which only track revenues/expenses/dividends for a single period and then set the accounts back to a zero balance to begin a new fiscal year.

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