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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Classify the following accounts as real (permanent) or nominal (temporary) and indicate with an X whether the account is closed. Also indicate the financial statement in which each account will appear. The Building account is given as an example.

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To determine

Indicate the account classification as real or nominal, and indicate the financial statement on which the accounts appear, using “X” mark.

Explanation

Real accounts: The accounts which are not closed at the end of fiscal period, but the balances are retained and carried forward to next fiscal period are referred to as real accounts or permanent accounts. All assets, liabilities, and capital accounts are real accounts

Examples: Accounts Receivable (asset), Cash (asset), Inventory (asset), Accounts Payable (liability), Wages Payable (liability), Notes Payable (liability), and Capital accounts are few examples of real accounts.

Nominal accounts: The accounts whose balance is zero at the beginning of the fiscal period and the balance in these accounts is transferred to permanent account, are referred to as nominal accounts or temporary accounts. At the end of fiscal period, the balance in nominal accounts is transferred to real accounts and closed. All the revenue, expense, and drawings accounts are nominal accounts.

Examples: Sales Revenue (revenue), Service Revenue (revenue), Fees Earned (revenue), Depreciation Expense (expense), Salaries Expense (expense), Income tax Expense 9expense, and Drawings accounts are few examples of nominal accounts.

Account classification:

Account TitleRealNominalClosedIncome StatementBalance SheetDescription
YesNo
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