What is a Nominal Account?

A nominal account is one that is closed out at the end of each fiscal year.

What is a Real Account?

A real account carries forward its ending balance into the following year.

Comparing Nominal Accounts and Real Accounts

A nominal account starts the next fiscal year with a zero balance, while a real account starts with the ending balance from the prior period. A nominal account is also known as a temporary account, while a real account is also known as a permanent account.

Examples of Nominal Accounts and Real Accounts

Nominal accounts are typically associated with the income statement, and so are used to record revenues, expenses, gains, and losses. Examples of these accounts are product revenue, the cost of goods sold, compensation expense, and utilities expense. When these account balances are flushed out at year-end, their balances usually end up in the retained earnings account.

Real accounts are typically associated with the balance sheet, and so are used to record assets, liabilities, and equity. Examples of these accounts are accounts receivable, accounts payable, and additional paid-in capital.