What is the difference between nominal and real accounts?

Okay, so, nominal and real accounts…what’s the deal? It’s one of those things that tripped me up when I first started learning about accounting. Like, seriously, why are there different types of accounts?

Think of it this way: Nominal accounts – things like revenue and expenses – are like a sprint. They track stuff over a short period, like a quarter or a year. Say you sold a ton of lemonade over the summer. That income goes into a revenue account. But once summer’s over, you kind of “reset” and start tracking your lemonade sales fresh the next year, right? You don’t carry over your summer earnings into the fall’s hot chocolate sales (unless you’re really good at business, I guess!). That’s what happens with nominal accounts. They’re closed out and start from zero each new accounting period.

Real accounts, on the other hand… these are more like a marathon. These are your assets (what you own, like your lemonade stand, or, in my case, maybe just my blender!), liabilities (what you owe, like maybe a loan you took out to buy lemons), and equity (what’s left over after you subtract your liabilities from your assets…hopefully something!). These guys stick around. Their balances carry over from one accounting period to the next. My blender doesn’t just disappear at the end of the year, right? It’s still there, ready for next summer’s lemonade extravaganza (or, more likely, my morning smoothies).

So, in a nutshell (or maybe a lemon rind?), nominal accounts are temporary sprinters, while real accounts are the marathon runners of the accounting world. Makes it a little easier to remember, don’t you think? At least, it helped me keep them straight!