NEED FOR NOMINAL ACCOUNTS

In theory the revenue should be added to the capital or the expenses

subtracted from it

A single capital account is used to record the capital with which the
bussines initiates its operations, as well as any additions that may be
made to it at the decision of the owners or the board of directors.

As many accounts as may be necesary are opened for the revenue and
expense transactions.

The revenue and expenses of a bussines are those resulting from the activities for
which the business was established. In the case of abusiness the major source of
revenue would be its sales and consequently, among its revenue accounts there
would be one headed sales.
 asset = liabilities + capital + revenue - expenses
thus far we have the following accounts

asset accounts this equiation is valid so long as the asset- the

enterprise's property- include the value of
the net income or net loss.
liability accounts

capital account or
proprietorship or LIABILITIES
owners ASSETS
+
CAPITAL
revenue accounts
+
REVENUE
- NOMINAL
ACCOUNTSS
EXPENSESS
expense accounts
 supposing that after a year in operation, by December 31,
the explain what we've stated with an we find that the business has lent a variety of customers a
example, let us return to the initial balance of total of $70,000 that it has collected all that it lent out and
our firm that, including the interest received, it has obtained a sum
of $120,000. Obviously the asset- what the business owns-
will have risen by $50,000, which is the difference
Initial Balance , January 1° between what was taken in (revenue: $120,000) and what
was loaned out (expenses: $70,000)
ASSET $150,000 LIABILITIES $105,000
CAPITAL 45,000 As a result, the assets would stand at:
$150,000 + $50,000 = 200,000
150,000 150,000 Balance Sheet, December 31
LIABILITIES $105,000
S ASSET $200,000 CAPITAL $ 45,000
Plus revenue 120,000
165,000
Less expenses 70,000 95,000

$200,000 $200,000
 BASIC CLASSIFICATION OF ACCOUNTS: REAL
ACCOUNTS AND NOMINAL ACCOUNTS

REAL ACCOUNTS
Are comprised of
• Asset accounts
everything relating to the • Liability accounts
property or debts of the
business and are • Capital account
subdivided into:

NOMINAL ACCOUNTS
Refer to the business • Revenue accounts
activities or • Expense accounts
transaction and are
broken down into:

It should be observed that the real accounts concern the property or debts of the business and the nominal
accounts, its transaction
 In order for all of the terms of
equation to bear a plus sign, we
shall pass the expenses from the
second to the first part of the
equation

ASSET = LIABILITIES + CAPITAL + REVENUE - EXPENSES

ASSETS LIABILITIES
REAL
REAL
ACCOUNTSS
ASSET + EXPENSES = LIABILITIES + CAPITAL + REVENUE ACCOUNTSS

EXPENSES CAPITAL
NOMINAL
All of the elements carry a plus ACCOUNTSS S
sign because in accounting all
entries should bear this sign REVENUE NOMINAL
ACCOUNTSS
S