What are the 3 nominal accounts?

Okay, so you want to know about nominal accounts? Honestly, when I first learned about these things, my head was spinning! They seemed so… temporary. Like, what’s the point if they just disappear? But they’re actually super important, even if they’re not permanent fixtures on the balance sheet.

Basically, think of nominal accounts as the short-term story of your business’s finances. They show you what happened during a specific period – maybe a month, a quarter, or a year. I remember when I was freelancing, I really needed to track my income (that’s revenue, right? Sales, fees – all that good stuff). And expenses? Don’t even get me started on the rent! That was a huge expense account for me back then. Ugh, remembering that makes me want to start freelancing again. But then I remember the taxes…

Anyway, there are three main types:

• Revenue accounts: This is where you record all the money coming in. Think of all those happy days when a client finally paid an invoice! That’s revenue. Sweet, sweet revenue.

• Expense accounts: The less fun side of things, unfortunately. This is rent, utilities, salaries… you name it, if it costs money to run your business, it goes here. I once forgot to account for a small software subscription, and it completely messed up my profit calculations for that month. Lesson learned: track everything!

• Gain/Loss accounts: These are a bit trickier, but basically, they deal with any profits or losses from things like selling assets. For example, if you sold some old equipment for more than you bought it for, that’s a gain. If you sold it for less… well, you know the drill. I actually had a small gain once when I sold my old laptop – unexpected, but definitely welcome!

So yeah, those are the three big ones. And the cool thing (or maybe not-so-cool, depending on your perspective) is that they all get “closed” at the end of each accounting period. They’re reset to zero, and all the information is transferred to the permanent accounts. It’s like a clean slate for the next period, but all that data is still stored – ready to help you understand your financial journey. It makes a lot more sense now, though, compared to when I first heard about it. Hopefully, this makes sense to you too!