Real, Personal, and Nominal Accounts
Real accounts are assets. Personal accounts are liabilities and owners' equity and represent people and entities that have invested in the business. Nominal accounts are revenue, expenses, gains, and losses. Accountants close nominal accounts at the end of each accounting period. This method is used in the United Kingdom, where it is simply known as the Traditional approach.
Transactions are recorded by a debit to one account and a credit to another account using these three "golden rules of accounting":
- Real account: Debit what comes in and credit what goes out
- Personal account: Debit who receives and Credit who gives.
- Nominal account: Debit all expenses & losses and Credit all incomes & gains
| Debit | Credit | |
|---|---|---|
| Real (assets) | Increase | Decrease |
| Personal (liability) | Decrease | Increase |
| Personal (owner's equity) | Decrease | Increase |
| Nominal (revenue) | Decrease | Increase |
| Nominal (expenses) | Increase | Decrease |
| Nominal (gain) | Decrease | Increase |
| Nominal (loss) | Increase | Decrease |
Read more about this topic: Debits And Credits
Famous quotes containing the words nominal and/or accounts:
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser—in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.”
—Abraham Lincoln (1809–1865)
“We must love one another, yes, yes, that’s all true enough, but nothing says we have to like each other. It may be the very recognition of all men as our brothers that accounts for the sibling rivalry, and even enmity, we have toward so many of them.”
—Peter De Vries (b. 1910)