Every company operating in the field of financial management will definitely apply basic accounting principles. Where, the account will be divided into two parts, nominal account and real account.
In general, accounting is very useful in recording the financial activities of a business. These financial activities will then be disaggregated in the accounting system and will be reported as a financial report or what is known as a financial statement .
Account itself is the word used to record financial transactions. In addition, the recording process is written as a transaction according to the account involved.
Businesses record transactions in multiple accounts, some of which include assets, equity, liabilities, profits, income, losses, and expenses.
The income, loss and profit account balances are then closed at the end of the year and are also known as nominal accounts. Asset, equity and liability account balances are carried forward to the next financial year. These accounts are classified as real accounts.
In this article, we will discuss what real accounts are and how they differ from nominal accounts in a complete bookkeeping and accounting process.
What is the Definition of a Real Account?
To record financial transactions, a company must first know several accounting principles, one of which is recording accounts. Actually, accounts in the ledger are divided into two real accounts and nominal accounts.
The definition of a real account is defined as a group of accounts that are recognized and reported in the balance sheet of each financial report.
In its profile, a collection of real accounts has a fixed or perpetual balance. This means that the real account balance remains the same at any given period during the business’s operations. The accounts included in real accounts are asset accounts or groups of assets, liabilities and capital sources.
Instead of closing, perpetual accounts remain open, accumulating a balance and rolling over to the next period or year. The actual amount of the account becomes the beginning balance of the new accounting period.
Do not include real accounts in your business income statement. Report real accounts on your balance sheet as:
- Asset
- Obligation
- Equity
Real accounts also include reconciliation accounts for assets, liabilities, and equity.
Your permanent accounts reflect the financial position of your business and may change over time as they operate throughout the year.
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Real Account Type
What are the types of real accounts? The following are some examples of real accounts in accounting:
1. Assets or Assets
The assets or assets included in real accounts are usually broken down into deposits, cash, and receivables. Accounts included in this asset class are useful as the main tool that can be used in the company’s operational activities.
Assets or assets are often called business assets, all of which are rights that a business can use for its operational purposes. This account includes costs incurred as a result of past transactions that benefit the future. Asset accounts or treasure accounts are classified into several types, namely:
A. Current Assets
Current assets or liquid assets are assets owned by a company that can be easily disbursed in the form of cash. The disbursement period cannot exceed 1 year.
Current assets as a form of liquid assets play a very important role in business operations. One of the advantages is being able to pay costs that arise such as buying raw materials, paying employee salaries, paying debts, paying building rent, etc.
Current assets are often used up quickly for current or incidental purposes. However, liquid assets will be filled from sales or other assets that have been completed. This is what makes the movement of liquid assets dynamic.
Companies that do not have cash or liquid assets will find it difficult to complete production. Therefore, companies must ensure that their current assets are safe when they want to resume production. So even though the company has assets in the form of long-term assets, it does not guarantee that production can be carried out. Current assets are grouped into:
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What
Cash is a readily available and free means of payment used to finance general business activities. A loan means that the business must provide sufficient cash to cover unexpected business expenses.
Additionally, cash is cash in the form of cash held by a business. Cash is often used to finance business activities. Even though you don’t see the reality, i.e. it’s still stored in the bank, the money is still referred to as liquid assets.
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Securities
Another type of current assets are securities. These assets are ownership of shares or bonds of other companies that are not permanent. So, this asset can be sold at any time to obtain cash if needed.
Securities are assets and financial instruments that are easily converted into cash and are therefore very liquid. Marketable securities are liquid because their maturity is usually one year or less, and the speed of transactions has minimal influence on price.
These securities are often used as a means of payment in modern business transactions, especially among entrepreneurs. Many entrepreneurs use this title as a means of payment for business transactions because it is considered more convenient, safer and also has its own credibility.
Apart from being able to facilitate various transactional activities, securities are also useful as legal documents because this letter is an indication to the sender of the letter, who is considered a party who is capable of exercising or exercising and releasing certain rights.
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Notes Receivable
Notes receivable are part of current assets. This letter is an order to collect money from a business entity from another party mentioned in the letter.
In the world of accounting, a note receivable is a formal written statement of the amount owed by a consumer. As long as collection is expected within one year, receivables are included in the current assets group which are recognized on the balance sheet of the financial statements.
Notes receivable can also be used to pay off customer receivables. Notes receivable are also called receivables. Guaranteed statements have several other advantages over statements recorded in the form of accounts receivable.
By signing a money order, the debtor acknowledges the debt and agrees to make payments according to the written terms. Therefore, the memo has very strong legal claims.
A note receivable is a written promise to pay a certain amount of money on demand or at the time specified therein. This letter can be paid to the customer, the company or the guarantor himself.
This letter is signed by the person or legal entity who has signed the contract. The person who is entitled to receive these notes is called the payee or payee, and the person who makes the promise is called the slipper of the tongue.
The bill payment date is called the due date. The calculation of the maturity date for the period from the issuance date to the maturity date of the short-term bond can later be expressed in daily or monthly terms.
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Accounts receivable
Generally, receivables are bills that must be paid by buyers. In other words, the right to claim is a right that individuals, companies and organizations can claim from credit transactions.
Existing bills can then be replaced with payments in the form of money, goods or services in accordance with the applicable agreement. As for the applicable period, also known as the maturity period, receivables usually range between 30 days to 60 days.
In the world of accounting, receivables or accounts receivables (accounts receivables) are current assets in a business as a result of transactions selling goods or services to a party. In existing transactions, payments are made on or off basis (receivables).
The receivables payment process must be clear. Therefore, the time to maturity applies. If the company is prevented from collecting its receivables outside the agreed time period, the receivables are recorded in a separate journal, namely the bad debts journal.
B. Fixed Assets
Assets, commonly referred to as assets, are the economic resources of a company that are used for the company’s operational activities.
As assets owned by the company for a long period of time or more than one year, such as office equipment in the form of electronic equipment, buildings and machines.
In accordance with financial accounting standards, as part of the preparation and presentation of basic financial reports.
To produce this product, the role of fixed assets is very important, such as land as a production site, buildings as factories and offices, machines and equipment as production tools and so on.
2. Debts or Liabilities
Payables are also classified as real accounts. Where a debt account is an obligation to pay and is recognized when the business has used services or goods. Debts or liabilities must be recognized at the payback period or due date. Accountability accounts are also divided into two groups, namely:
Short-term debt, in the form of obligations that must be paid within a period of no more than one year. Such as business debts, business debts and unrealized income. Long-term debt is in the form of bonds that must be repaid over a period of more than one year. Such as bank loans and sales of securities.
3. Capital or Equity
Capital or equity is the difference between the liabilities and assets of a business. The capital balance is recorded in the form of money, buildings and land.
The origin of equity comes from the word equity or equality of ownership , which means the company’s net worth.
According to Financial Accounting Standards (PSAK No. 21), equity is part of the owner’s rights in a business, specifically the difference between existing assets and liabilities, and therefore is not a measure of the sale value of a business.
Basically, equity is obtained from the owner’s investments and the results of business operations. Equity will decrease, especially when owners withdraw ownership, share in profits or as a result of losses. Equity includes owner savings which are commonly known as member capital or principal savings to partnership legal entities, retained earnings, etc.
Example of a Real Account
You have just opened a cake shop and you have the following:
What: 20,000,000
Fixed assets: 30,000,000
Inventory: 15,000,000
After a few months in business, you also have the following:
Revenue: 35,000,000
Cost of goods sold (COGS): 15,000,000
Rent: 2,500,000
Additional costs: 1,500,000
Your accounting period starts from January 1 to December 31 each year. At the end of the year (or period), you report revenue, COGS, rent, and other expenses on your income statement as net income of 16,000,000. Accounts on your income statement close at the end of the year.
At the end of the year, you carry over your permanent account which is now your retained income into the new year.
Your permanent account becomes your starting balance at the start of the new period. And, your opening balance consists of the sum of your cash, fixed assets, and inventory accounts.
Difference between Real Account and Nominal Account
Apart from real accounts, in accounting it is necessary to use nominal accounts so that companies can classify assets and liabilities with similar characteristics.
On the other hand, nominal accounts or nominal accounts are a group of accounts whose transactions are recorded in the company’s profit and loss account.
During this process, accounts classified as closed accounts will be recorded without a total balance. This account itself consists of two types, namely expense accounts and income accounts or sales accounts. However, the differences between the two accounts are as follows:
- Real accounts are non-refundable accounts with zero balance, while nominal accounts always start with zero balance and end with zero in all financial statement operations. Indeed, the actual accounts continue to record a company’s financial reports from year to year.
- Real accounts are recorded on the balance sheet, while nominal accounts are recorded on the income statement.
- In each financial year, the real account can receive a nominal account balance, which means that the nominal account balance can be transferred to the real account for a net change in the yearbook
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Definition of Account
In a business, someone must have basic knowledge of accounting in order to manage finances well in business operations. This accounting principle is applied to record the financial flows of a company and will be reported in the form of financial reports.
Accounts are an accounting platform for recording financial flows that result in changes in assets, liabilities, capital, income and expenses. The account will record financial activities chronologically at the time and date of the transaction. Some accounts are classified based on similar transactions, one of which is a real account.
Purpose of Account Grouping
The operation of grouping accounts based on nominal and real accounts is usually carried out. There are also many large companies that share these different accounts in their financial records. There are several different reasons why account separation is recorded using both accounts, namely:
1. Differentiate Each Account
Actual and nominal amounts are recorded in groups. This is done to make it possible to visualize and categorize account types in more detail and also by their nature. Apart from that, the aim is also to make registration easier in a system.
2. Information Source
By verifying the records contained in nominal and real accounts, companies can obtain various types of information.
An example is displaying information based on actual accounts, companies can display financial reports in the form of a balance sheet. Meanwhile, to see the nominal account, the company can look directly at the profit and loss report.
3. Asset growth
With nominal and real accounts, companies can also experience growth in their assets. The method is to look at the nominal value listed on the account for the types of liabilities, assets, capital and income.
Therefore, asset developments can be known in advance but can also be predicted, and become a reference in making sound business decisions.
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Closing
With the explanation above, we can see that an account is a description used to reflect various financial activity transactions and to reflect recorded financial transactions. In business transactions, accounts are divided into two, namely nominal accounts and real accounts.
Understanding real accounts is a group of accounts that are recorded and reported in the balance sheet of each financial report. The groups of accounts that are classified as real accounts are assets or assets, liabilities or debts, and sources of capital or equity.
On the other hand, nominal accounts are a group of accounts whose transactions are recognized in the profit and loss statement and include two types of accounts as expense accounts and income accounts. Account groups based on real and nominal accounts have several purposes. Some of the goals are to be able to distinguish each account, as a valid source of information and to see the growth of assets owned by the company.