What is an Example of Real Account?

What are the Types of Real Account? What are the Examples of Nominal Account? Is Salary a Real Account? Is Capital Account a Real Account? Is Loan a Personal Account?

Money is a requisite and the money needs to be stored somewhere. A bank is a place where you can save all this money and sit without stressing about them being stolen from your home. To do this it is essential to have an account in your respective bank as without it nothing can be possible. In this article, we are going to discuss an example of real account, the types of real accounts, whether is cheque a real account, and whether is bank account a real account or not. So, let’s begin and find out about an example of real account and many more.

1. What are the Types of Real Account?

Starting off with what an account is would be a great idea. So essentially an account is defined as an outline of transactions undertaken by businesses in respect of persons, their representatives, and also things. Real accounts, on the other hand, are known to be related to assets, possessions, or properties, and these properties can be either non-physical or physically existing in nature. There are two types of real accounts namely tangible and intangible.

  • Tangible real accounts: These are known to be the accounts that have a physical existence, i.e., the assets that can be felt, seen, or touched. Some examples could be vehicle accounts or machinery accounts.
  • Intangible real accounts: The possessions or assets which do not have a physical existence but are measured in terms of money are known as intangible. These include trademarks and copyrights among others.

2. What is an Example of Real Account?

If you did open a cafe with:

Cash $40,000

Inventory $30,000

Fixed assets $60,000

And after about 5 months, the results of the calculations that you would get out of running the business will be:

Revenue $70,000

COGS $30,000

Rent $5,000

Miscellaneous $3,000

At the end of a whole year, your income statement would have $32,000. So, in the end, this becomes the permanent account and is the beginning of the balance of the new period, which is a new year. And this can be classified as an example of real account, do note that the beginning balance for the new year or period will consist of the amount in cash, inventory, and fixed assets you own. (See What are Characteristics of Good Money?)

3. What are the Examples of Nominal Account?

Let us begin with the meaning of a nominal account. The accounts that can be related to or associated with expenses, income, losses, or gains are known as nominal accounts. This is an income statement account which is also known as a temporary account and so starts with a balance of zero at the start of every accounting year or a new period. Once this is done, all the profits and losses are transferred to a permanent account so that you can start a new accounting year with zero balance. Examples of nominal accounts are purchase account, salary account, and commission or sales account among others. (See What is accounts receivable with recourse?)

4. Is Bank Account a Real Account?

So, is bank account a real account? Yes, it can be considered an example of real account. A bank account is a real account because the transactions that you make with your bank are recorded and the transactions are real in the sense that there are withdrawals, transfers, interest payable and receivable, charges that are debited, and bills that are paid so it is not an unreal thing.

Another reason why this can be considered an example of real account is because this is an asset to your business. When you are in or doing business, you open an account to make debits and credits of cash and in the end, it is considered a real account. But, is cheque a real account? Let’s find it out. (See What do households do in the factor market?)

5. Is Salary a Real Account?

You might have heard of your parents or friends receiving a salary at the start of a new month and they become happy when it is time for their salary. Essentially, salary is a fixed regular payment that happens mostly on a monthly basis and is received by an employee who is especially a professional or white-collar worker, by their employer.

Well, one can say that a salary account is a mix of nominal and expense accounts and the reason for this is that they can be associated with the income statements and are used to record profits, losses, and even revenues also. Any individual is free to open a salary account or another way is a tie-up between the bank and the organization so it becomes easier to store the salary of the employees. (See How much money do banks hold?)

6. Is Goodwill a Real Account?

A goodwill account is defined as an intangible asset that accounts for the excess purchase price of another company. In simple terms, this is when a company acquires an entire other business. So, the cost that was required to purchase the business minus the market value of the tangible asset is known as goodwill. Earlier this was discussed that a real account consists of tangible as well as intangible accounts and goodwill comes under the intangible account making it an example of real account in the end. The two types of goodwill are as follows:

  • Purchased: This is the difference between the paid value and the sum of its assets, which is less than the sum of its liabilities.
  • Inherent: The value of the business being excess of the value of its separable net assets is known to be inherent goodwill.

7. Is Capital Account a Real Account?

The net worth of any business at a specific point in time is known as the capital account. Another known name for this is owner’s equity for either a sole proprietorship or a shareholder’s equity and this is reported in the bottom section of the balance sheet. It would be wrong to say that a capital account is an example of real account as the capital is brought in by the proprietor and this is the reason why the capital account is considered to be a personal account.

To understand this better you should know that the ledger accounts contain transactions that are related to individuals or some other organizations with whom the business has direct transactions which are personal accounts. (See Where do banks put their money?)

8. Is Cheque a Real Account?

The cheque is defined as an authorization to draw funds from an account and to do this should state the name of the payee, the amount that is to be paid, and the date along with it. This is the most common payment method that is used globally for the past years. A cheque can therefore be considered an example of real account. Current and overdraft accounts are the ones linked to checkbook services in order to facilitate the secured and easy execution of payments or transfer of funds. Current and cheque accounts are the accounts that offer cheque facilities. (See Is bee.com a Cryptocurrency?)

9. Is Loan a Personal Account?

Personal accounts are known as ledger accounts that contain transactions that are related to individuals or some other organizations with whom the business has direct transactions and a loan is a representative of what is considered a personal account. This also represents the person to whom the loan is given and the person from whom the loan is obtained.

A loan is what is defined as something that is borrowed for a sum of money that is expected to be returned back or paid back with interest. Other words with which it goes are mortgage, credit, overdraft, and debenture. (See How do you find the routing number for a chase bank account online?)

10. What Type of Account is Land?

Photo by Gautier Pfeiffer on Unsplash

The land is what is considered a long-term asset that reports the cost of the real property which is exclusive of the cost of any and every constructed asset on the property. To make it simple, long-term assets are items that are not expected to be converted into cash within one whole year. This is usually something that appears as the first item under the balance sheet heading of property, plant, and equipment.

Land is the asset that has the longest life span and it cannot be depreciated which means that one cannot reduce its value over its useful life span. Also, because land in general is the least liquid asset that a business can own, it comes as a fixed asset on the balance sheet. Something that can be noted here is that being a long-term asset, it isn’t expected to be converted into cash within a span of a year. (See What are Tax Exempt Bonds?)

11. Why Salary is a Nominal Account?

Salaries are often considered nominal accounts but by definition, this is known to be a type of savings account, in which normally the employer of the person who holds the account deposits a fixed sum of money known as salary on a monthly basis. And this in turn is the reason why salary is an expense account and a nominal account. Expense accounts are the ones in which there is a running tally of your business expenses for each period.

A nominal account is also related to losses, expenses, and income or profit in an account. And a salary is always recorded through a salary account which is the employer’s and not from the employee’s personal account. (See What is the Salary of Big Cat?)

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts
Read More

Why do You Need Your Toes?

Can you live without your toes? Toes provide balance and support when you walk. When you walk, your toes maintain contact with the ground about 75% of the time.
JAN23 Where are Subarus Made
Read More

Where are Subarus Made?

Subaru Cooperation, formerly known as Fuji Heavy Industries, is a Japanese automobile manufacturing company. Its multiple manufacturing units are further discussed in this article.