Real account definition
/What is a Real Account?
A real account is an account that retains and rolls forward its ending balance at the end of the year. These amounts then become the beginning balances in the next period. The areas in the balance sheet in which real accounts are found are assets, liabilities, and equity. Real accounts also include contra asset, contra liability, and contra equity accounts, since these accounts retain their balances beyond the current fiscal year.
Presentation of Real Accounts
Real accounts are not listed in the income statement. All of the balances in the revenue, expense, gain, and loss accounts (known as nominal accounts or temporary accounts) listed in the income statement are flushed out to retained earnings at the end of each fiscal year, resulting in zero beginning balances in these accounts as of the beginning of the next fiscal year. Since retained earnings is a real account, this means that the balances in all nominal accounts are eventually shifted into a real account.
How do Auditors Use Real Accounts?
Auditors routinely review the contents of real accounts as part of their audit procedures. If they can verify that the ending balances in these accounts are justified, then by default all other transactions recorded by the client must have been flushed out through the income statement.
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Examples of Real Accounts
Examples of real accounts are as follows:
Terms Similar to Real Account
Real accounts are also known as permanent accounts.