Understanding Real Accounts – Every company engaged in financial management will definitely apply the basic principles of accounting. Where, the account will be divided into two parts, a nominal account and a real account.
In general, accounting knowledge 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 financial reports or what are known as financial statements .
Account itself is a word used to record financial transactions. In addition, the process of recording it is written as a transaction according to the accounts involved.
Businesses record transactions in several accounts, some of which include assets, equity, liabilities, profits, revenue, losses, and expenses.
The balance of the revenue, loss and profit account is then closed at the end of the year and is also known as a nominal account. 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 a real account is and how it differs from a nominal account in the complete bookkeeping and accounting process.
What is the Definition of a Real Account?
To record financial transactions, companies must first know several accounting principles, one of which is account recording. Actually, the accounts in the general ledger are divided into two real accounts and nominal accounts.
Understanding Real account or real account is defined as a group of accounts that are recognized and reported in the balance sheet or balance sheet of each financial report.
In the profile, the real account pool has a fixed or perpetual balance. This means that the real account balance remains the same over a given period of time while the business is operating. The accounts included in the real account are asset accounts or groups of assets, liabilities, and sources of capital.
Instead of closing, the perpetual account remains open, accumulates a balance and rolls over to the next period or year. The actual amount of the account becomes the opening balance of the new accounting period.
Don’t include real accounts on your business income statement. Report the real account on your balance sheet as:
The real account also includes a reconciliation account for assets, liabilities and equity.
Your permanent account reflects the financial position of your business and is subject to change from time to time as they operate throughout the year.
Real Account Type
What are the types of real accounts? Here are some examples of real accounts in accounting:
1. Assets or Assets
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 operations.
Assets or assets are often called business assets, all of which are rights that a business can use for its operational interests. This account includes costs incurred as a result of past transactions that benefit the future. Asset accounts or property accounts are classified into several types, namely:
A. Current Assets
Current assets or liquid assets are assets owned by companies that can be easily liquidated in cash. The disbursement period should not 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 replenished 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 production can be carried out. Current assets are grouped into:
Cash is a free and available tender used to finance general business activities. Loans mean that the business must have sufficient cash available to cover unforeseen business expenses.
In addition, cash is cash in the form of cash held by the business. Cash is often used to finance business activities. Even if you don’t see the reality, the alias is still stored in the bank, the money is still referred to as liquid assets.
Another type of current asset is securities. These assets are the non-permanent ownership of shares or bonds of other companies. So, these assets can be sold at any time to get cash if needed.
Securities are assets and financial instruments that are easily converted into cash and therefore highly liquid. Marketable securities are liquid because their maturities are usually one year or less, and the speed of transaction has minimal effect on price.
These securities are often used as a means of payment in modern business transactions, especially among entrepreneurs. Many businessmen use this title as a means of payment for business transactions because it is considered more convenient, safer and also has its own credibility.
In addition to being able to facilitate various transactional activities, securities are also useful as legal documents because these letters are instructions to the sender of the letter, who is considered a party capable of exercising or exercising and waiving certain rights.
Notes receivable are part of current assets. This letter is an order to collect money from a business entity to another party mentioned in the letter.
In the accounting world, a note receivable is a formal written statement of the amount a customer owes. As long as collection is expected within one year, accounts receivable are included in the current assets group which are recognized in the balance sheet of financial statements.
Notes receivable can also be used to pay off customer receivables. Notes receivable are also called accounts receivable. Guaranteed statements have several other advantages over reports recorded as receivable.
By signing the note, the debtor acknowledges the debt and agrees to make payments according to the written terms. Therefore, the memo has very strong lawsuits.
A note receivable is a written promise to pay a certain amount of money upon request or at a 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 that has signed the contract. The person entitled to receive these notes is called the payee or payee, and the person making the promise is called the glitcher.
The date of payment of this bill is known as the due date. The maturity date calculation for the period from the issue date to the maturity date of the short-term bonds can later be expressed in daily or monthly terms.
Generally receivables are bills that must be paid by the buyer. In other words, the right to claim is a right that can be claimed by individuals, companies and organizations 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 from 30 days to 60 days.
In the world of accounting, receivables or trade receivables (accounts receivables) are current assets in a business as a result of sales transactions of goods or services to a party. In existing transactions, payments are made on or off basis (receivables).
The process of paying receivables must be clear. Therefore, apply time to maturity. If the company is prevented from collecting its receivables beyond the agreed timeframe, these 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 operations.
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 statements.
To produce this product the role of fixed assets is very important, such as land as a place of production, buildings as factories and offices, machinery and equipment as means of production and others.
2. Debt or Liability
Payables are also classified as real accounts. Where the debt account is an obligation to pay and is recognized when the business has used services or goods. Debt or liability should be recognized in the period or due date of the return. Liability 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 trade payables, accounts payable and unrealized income. Long-term debt is in the form of bonds that must be repaid within a period of more than one year. Such as bank loans and securities sales.
3. Capital or Equity
Equity or equity is the difference between the liabilities and assets of a business. The capital account 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 investment and the results of business operations. Equity will decrease, especially when owners withdraw ownership, participate in profits or as a result of losses. Equity includes owner’s deposits commonly known as member’s capital or principal deposits to partnership legal entities, retained earnings, and others.
Example of a Real Account
You just opened a cake shop and you have the following:
Fixed assets: 30,000,000
After several months in business, you also have the following:
Cost of goods sold (HPP): 15,000,000
Additional fee: 1,500,000
Your accounting period starts from 1 January to 31 December every year. At the end of the year (or period), you report income, COGS, rent, and other expenses on your income statement as net income of $16,000. The accounts on your income statement close at the end of the year.
At the end of the year, you carry your permanent account that is now your retained earnings into the new year.
Your permanent account becomes your initial balance at the start of a 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
In addition to 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, a nominal account or nominal account is 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:
- A real account is a non-refundable account with a zero balance, whereas a nominal account always starts with a zero balance and ends with zero in all financial statement operations. Indeed, the actual accounts continue to record the financial statements of a company 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 the net change in the yearbook.
Definition of Account
In a business, one must have basic knowledge of accounting in order to manage finances properly 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 statements.
An account is an accounting platform for recording financial flows that result in changes in assets, liabilities, capital, income and expenses. The account will record financial activity chronologically at the time and date of the transaction. Several accounts are classified based on similar transactions, one of which is a real account.
Account Grouping Purposes
Account grouping operations based on nominal and real accounts are usually carried out. There are also many large companies that share these different accounts in their financial records. There are several different reasons why segregation of accounts is recorded using the two 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. In addition, the goal is also to facilitate registration in a system.
2. Source of Information
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 balance sheet form. Meanwhile, to see the nominal account, the company can look directly at the income statement.
3. Asset growth
With nominal and real accounts, companies can also experience growth in their assets. The trick is to look at the nominal listed on the account for the types of liabilities, assets, capital and income.
Therefore, asset developments can be known beforehand but can also be predicted, and become a reference in making sound business decisions.
With the explanation above, we can see that an account is a description that is 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.
The definition of a real account is a group of accounts that are recorded and reported in the balance sheet of each financial statement. Groups of accounts 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 income statement and it includes two types of accounts as expense account and income account. Group accounts based on real and nominal accounts have several purposes. Some of the goals are to be able to differentiate each account, as a valid source of information and to see the growth of assets owned by the company.