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Actual accounts are ledger accounts that relate to tangible assets and liabilities and are considered permanent accounts. They are classified as real, nominal, or personal, and are used to determine a company’s financial position on the balance sheet.
Actual accounts are ledger accounts in a company’s accounting system that relate to tangible assets and liabilities, such as property or past-due debt. All ledger accounts are classified as real, nominal, or personal. Actual accounts are considered permanent accounts because their year-end balance carries over to the next year on a company’s balance sheet instead of being reduced to zero with debit and credit entries. The four types of real accounts are assets, liabilities, reserves, and equity.
Every company must implement an accounting system to manage its finances, assess its financial position, and comply with its regulatory and tax obligations. Accounting is an integral part of the financial accounting system that dictates the conventions and standards that a jurisdiction adopts to standardize reporting in its financial businesses and sectors. Most accounting systems use a list of accounts that are classified as real, personal, or nominal, and then record transactions to accounts under those classifications through a double-entry bookkeeping process. Each transaction is recorded twice, with a credit on one side of the books and a debit on the other.
Actual accounts are those accounts that correspond to items the company owns or obligations it must pay, including assets, liabilities, reserves, or capital contributions. These items carry over from year to year because a company does not sell all of its assets every year, nor does it normally pay off all of its debt. Nominal or temporary accounts are the opposite of real accounts. These accounts represent the flow of cash in and out and are reduced to zero at the end of the year through a double debit-credit entry, just like profit and loss accounts and profit and expense accounts. Personal accounts represent amounts owed or owed to individuals or entities.
Each year, a company produces financial statements of the company’s books, sometimes as part of an independent audit. One of the most important statements generated is the balance sheet. This statement presents a picture of the company’s financial position at a given point in time, which may be the end of its fiscal year. The balance sheet represents a financial equation, and its proper setup allows a company to determine how much it has in assets, liabilities, or equity. Categorizing accounts as real, nominal, or personal allows an accountant to plug the correct numbers into the correct places on the balance sheet to accurately reflect the condition of the company.
Smart Asset.
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