Real AccountDefined with Examples & More

Written By:
Adiste Mae

Reviewed By:
FundsNet Staff

What are Real Accounts?

In accounting, Real Accounts are referred to as Balance Sheet accounts.

Their balances are not closed to an income or expense account at the end of the period but are rather carried forward to the next.

Real Accounts consist of accounts that are recorded under Assets (including contra accounts), Liabilities, and Equity.

Over different accounting periods, Real Accounts change as transactions are added or subtracted.

Real Account vs. Nominal Account vs. Personal Account

Apart from Real Accounts, there are also other account types that are used in accounting such as Nominal Accounts and Personal Accounts.

Where real accounts are balance sheet accounts and are considered permanent accounts, Nominal Accounts are Income Statement accounts and are closed at the end of each accounting period.

They include income, expenses, gains, and losses.

A Personal Account, on the other hand, is a general ledger account that relates to companies or individuals.

Examples include the purchase of raw materials from Company X or the sale of goods to Company Z.

Company X and Company Z are personal accounts in the general ledger.

Types of Real Account

Examples of Real Accounts include the following:

• Cash
• Accounts Receivable
• Furniture & Fixture
• Office Equipment
• Salaries and Wages Payable
• Common Stock
• Retained Earnings

The examples above show the different accounts that fall under Assets (Cash, Accounts Receivable, Furniture & Fixture, Office Equipment), Liabilities (Salaries and Wages Payable), and Equity (Common Stock and Retained Earnings).

Example of Real Account

Real Accounts are also consistent with double-entry bookkeeping.

Essentially, when you debit an account, there must be a corresponding credit.

For example, your company purchased new machinery for $100,000 in cash.

This will be recorded as a debit to Machinery for $100,000 and a credit to Cash for $100,000.

This transaction affects both asset accounts which are real accounts.

Let’s say that you have just opened a furniture shop and the following information can be seen in your books:

Cash: $75,000

Machinery & Equipment: $350,000

Inventory: $210,000

At the close of the business year, these balances can be seen in the books:

Revenue: $290,000

Cost of Goods Sold: $180,000

Operating Expenses: $75,000

Additional Expenses: $10,000

A net income of $25,000 is reported in the Income Statement, which will be closed in the Retained Earnings account in the Balance Sheet.

All the Income Statement accounts are closed and shall have a zero balance in the next accounting period.

The real accounts such as Cash, Machinery & Equipment, and Inventory are not closed and their balances shall be carried forward to the next accounting period as beginning balances.